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USD/JPY Technical Analysis: Carried Higher By Holiday Rally

USD/JPY Technical Analysis: Carried Higher By Holiday Rally

2016-12-05 17:05:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • USD/JPY Technical Strategy: Favorable Cross-FX Flows Keeping JPY Weak, USD/JPY Supported
  • Monday’s Non-Manufacturing ISM Providing Fundamental Support for USD/JPY
  • Thursday Q3 GDP For Japan In Focus As Trend Seems Alive & Well

Fundamental data has given USD/JPY a boost on Monday as US Non-Manufacturing (i.e. service) ISM rose to one-year highs on strong employment and export orders. While USD/JPY has traded nearly sideways for the start of December, we could be in a consolidation zone before a continuation of the trend as the JPY remains weak across the board and the recent stumble in the USD against oversold currencies like CAD and EUR are not bleeding over into JPY.

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A significant range took place overnight in EUR/JPY on the back of the Italian Referendum which saw EUR/JPY trade as low as 118.7 followed by a Monday morning low of 123.21 in what looks to be further confirmation of JPY weakness across the board.

In addition to cross-JPY flows and fundamental data, we saw from the CFTC data the both leveraged institutions (i.e. hedge funds) and unleveraged asset managers increased net JPY shorts by 2,782 and 10,890 contracts respectively. Therefore, you can see the big players are riding the trend of JPY weakness, and it currently looks like a tail-event would be required to stop the USD/JPY or XXX/JPY train higher for the time being.

Lastly, the underlying fundamental support of rising yields in the U.S. as Japan’s 10-year remains pegged near 0% helps push USD/JPY higher, which is another reason why this trend may be tough to stop.

H4 USD/JPY Chart: USD/JPY Reversal Off 100 Now Faces Test of August 2015 Low at 115.874

USD/JPY Technical Analysis: Carried Higher By Holiday Rally

Chart Created by Tyler Yell, CMT, Courtesy of TradingView

The admittedly busy chart above is designed to point out two main points. First, the Ichimoku cloud on the 240-minute chart is providing excellent support on the trend breakout in USD/JPY. A failure for the price to break below the 240-minute cloud without momentum (the lagging line) following close behind will encourage many traders to remain long or out of the trade.

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The second focal point of the chart that shows a near vertical move is a focus on resistance in the 115.87 zone. While the trend is expected to extend as the fundamental factors remain in play, there should be a focus on the August 24, 2015, low, which developed at the apex of a mini-flash crash on worries of liquidity and China after their initial Yuan devaluation.

While the worries that caused the short-term panic have been sorted out, for now, there is value in watching a trend’s advancement into prior pivot points. Price resistance developing in the upper-115 region alongside a break below the 240-minute Ichimoku cloud would likely cause reason to think a larger trend correction is upon us. However, until we see such a development, we’ll continue to favor further upside.

Shorter-Term USD/JPY Technical Levels: December 5, 2016

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

USD/JPY Technical Analysis: Carried Higher By Holiday Rally

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