Talking Points:

USD/JPY is getting a lot of attention after the Federal Reserve failed to increase their number of forecasted rate hikes last Wednesday. The options market recognized over 20% of Monday’s volume on USD/JPY bets, and a look at the chart can help show why traders are anticipating a big move. The anticipated G20 meeting went on to show that the heads of finance at the 20-largest global economies were not interested in adding any formal statement that would make any further intervention from the BoJ difficult.

First, the price of USD/JPY on the Daily Chart (shown below) is trading below the Ichimoku Cloud for the first time since summer. While it is early to have high confidence in the move of USD/JPY lower, the price trading below the cloud is a key component of a fresh bullish JPY theme alongside bearish USD/JPY momentum via the lagging line displaying below price from 26-periods ago.

On the chart below, which is shown in logscale, you can see that the price is also sitting at the bottom of two price channels. The larger channel is drawn with Andrew’s Pitchfork, which has framed price very well, despite the post-election volatility. In addition to trading at thesupport of the larger channel, we are also trading at Bear Flag or a corrective channel support. A breakdown from Bear Channel support would open up a move toward 110/108 on JPY strength, which aligns with the 50, & 61.8% retracement of the post-election price range.

Despite the bearish tone, a trade above 114.48 would show an overlapping price structure that would negate a near-term Bearish view. Until then, we’ll keep an eye for a price break of channel support given the larger environment that may support pending JPY strength and USD weakness.

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D1 USD/JPY Chart: USD/JPY Trading < 100-DMA + Ichimoku Cloud, Possible Bear Flag Forming

USD/JPY Technical Analysis: Price At Multi-Channel Support In View

Chart Created by Tyler Yell, CMT

Lastly, traders who utilize sentiment via SSI in their analysis should note the rise of long orders in USD/JPY. SSI is currently +2.8118 on USD/JPY as 74% 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 increasing net-long exposure provides asignal thatUSDJPY may have downward pressure from a contrarian point of view, which is how we utilize retail sentiment data.

USD/JPY Sentiment: US Dollar Set to Decline Further versus Japanese Yen

USD/JPY Technical Analysis: Price At Multi-Channel Support In View

Retail trader data shows 74% of traders are net-long with the ratio of traders long to short at 2.8118 to 1. In fact, traders have remained net-long since Jan 09 when USDJPY traded near 116.998; price has moved 3.3% lower since then. The number of traders net-long is 4.1% higher than yesterday and 13.2% higher from last week, while the number of traders net-short is 2.2% higher than yesterday and 28.1% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias. (Emphasis Mine)

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Shorter-Term USD/JPY Technical Levels: Monday 20, 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.

USD/JPY Technical Analysis: Price At Multi-Channel Support In View

Contact and discuss markets with Tyler on Twitter: @ForexYell