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USD/JPY Technical Analysis: It Could Get Scary Below These Levels

USD/JPY Technical Analysis: It Could Get Scary Below These Levels

Tyler Yell, CMT, Currency Strategist


What can traders expect from USD/JPY in a year of US rate hikes? Here are our thoughts.

Talking Points:

  • USD/JPY technical strategy: a close < 110 on closing shifts basis to bearish
  • Breakdown < 110 could signal JPY strength toward 107/08 per USD
  • USD/JPY testing November trend line and Ichimoku cloud base

Trading is not supposed to be easy. Of course, the rewards for those who can crack the code make an effort worthwhile, but work and adaptation is required. That truth is made apparent when looking at the ever-fluent environment surrounding USD/JPY.

USD/JPY is near proof that such a dynamic exists as the market goes from one belief to another about the economic realities of the world that shifts expectations about global capital flow. After a Q4 in 2017 that seemed markets could only go up (a la Bitcoin), USD/JPY has spent much of 2017 retracing its meteoric rise. Now, USD/JPY is testing multiple forms of key support on the chart, and if the support zones break, it may indicate more JPY strength is on its way.

The slog lower in USD/JPY on the back of disappointing US economic performance that casts doubt that the Fed will aggressively hike at the same time they look to reduce their $4.5T balance sheet holdings has left traders moving out of USD and into other markets. If this trend continues or we find next week that the Fed is going to tone down their expectations for future hikes on Friday’s NFP-miss, which aligns with our economic misses could allow USD/JPY to likely break below the key support at 110.00/50.

The chart below can help illustrate the amount of support at play near 110.00/50. To name a few, the 200-DMA currently sits at 110.18 along with a Trendline drawn off the pivotal November 9 low, which marked a shift in how traders viewed the global economy. There is also a 61.8% Fibonacci retracement level at 110.51, which tends to act as strong support in an uptrend (if it is an uptrend) and the Fibonacci level aligns with the base of the Ichimoku Cloud.

Should these levels hold, it is fair to say we could see a return of the well-missed USD strength and an eventual daily close above 112 would turn focus to 114.37+. However, a failure at these levels and a move lower would turn focus sharply on the (current) 2017 low of 108.13, which may not hold if risk-on sentiment sours.

Join Tyler in his Daily Closing Bell webinars at 3 pm ET to discuss market developments.

Chart Created by Tyler Yell, CMT

USD/JPY IG Trader Sentiment: Yen likely to stay strong versus USD per IG Sentiment

What do retail traders’ buy/sell decisions hint about the JPY trend? Find out here !

USDJPY: As of June 05, retail trader data shows 64.6% of traders are net-long with the ratio of traders long to short at 1.83 to 1. In fact, traders have remained net-long since May 17 when USDJPY traded near 113.64; the price has moved 2.7% lower since then. The number of traders net-long is 4.5% higher than yesterday and 15.7% higher from last week, while the number of traders net-short is 22.5% higher than yesterday and 3.3% 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. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USDJPY trading bias. (Emphasis Mine)

The takeaway to me for IG Client Sentiment on USD/JPY is that longs are getting more aggressive on a daily and week-over-week basis. In taking a contrarian view, this opens up the likelihood of further breakdown continuing Wednesday’s price action. A break below the levels mentioned above at 110.00/50 with this sentiment picture holding could precede an aggressive breakdown.


Shorter-Term USD/JPY Technical Levels: Monday, June 05, 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.

Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.