Talking Points:
- USD/JPY Technical Strategy: Little market conviction above 115 since mid-January
- Previous Post: USD/JPY Technical Analysis: Retail Buyers Load In Before Trump Speech
- SSI is currently +1.0942 onUSD/JPY as 52% of retail traders are currently long: To stay up with the Speculative Sentiment Index, please click here.
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USD/JPY longs likely feel both exonerated and confused. Over the last few weeks, we’ve seen the pricing in of a Federal Reserve rate hike at the March 15 meeting rise from ~33% in mid-February to a 98% implied probability as of Monday. Much of this rise in the implied probability of a March rate hike came from Yellen’s comments on Friday that aligned with a Fed focus on tightening in the FOMC meetings ahead alongside consisted US Economic surprises.
The question that appears to be a rudder on USD crosses going forward is whether upcoming data will complement three or four Fed hikes this year and in subsequent years. Any disappointments in the data that could swing the view toward three or possibly fewer hikes if we get a large string of disappointments could open a window for USD weakness. In this event, watch for a push in USD/JPY toward key chart support at 111.59.
Despite the strong charge higher in equity indices and volatility in a handful of commodities, USD/JPY has remained range-bound since the second-half of January. The key zone of resistance that should hold a majority of trader’s attention is at 115.02/11, which sits above the 55-DMA (114.513).
Conversely, a breakdown in the price would align with a continuation of the initial sell-off witnessed in after the December rate hike. However, it’s difficult to get excited about a plausible test of 108/110 without a break below the 100-DMA and 38.2% retracement of the post-November9 rally at 112.157 and 111.98 respectively.
In short, the current market has posture to stay range-bound and remains difficult to trade from a trend following perspective given the opportunity costs of riding a long-winded sideways consolidation. The long-term trend since summer is higher, but that does not negate the possibility of the current correction since December to continue lower. Additionally, the lack of upside in USD/JPY with the positive fundamental background over last week causes me to give an edge to the short-term downside bias.
Lastly, traders who utilize sentiment via SSI in their analysis should note the recent drop of long orders in USD/JPY. SSI is currently +1.0666 on USD/JPY as 52% of retail traders are currently long. We use our SSI as a contrarian indicator to price action, and now that the majority of traders are less net-long provides asignal thatUSDJPY may trade sideways without a clear trend.
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D1 USD/JPY Chart: USD/JPY Trading Within Firm Consolidation Range of 115.11/111.57
Chart Created by Tyler Yell, CMT
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Shorter-Term USD/JPY Technical Levels: March 6, 2017
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.
Contact and discuss markets with Tyler on Twitter: @ForexYell
