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USD/JPY Rate Forecast:  Bearish Candlestick Pattern Shows JPY Strength

USD/JPY Rate Forecast: Bearish Candlestick Pattern Shows JPY Strength

Tyler Yell, CMT, Currency Strategist
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USD/JPY Rate Forecast Talking Points:

  • The ONE Thing: JPY strength is emerging vs. US Dollar this week but has been prominent against weaker FX (EUR, GBP, AUD) for a while. US Dollar weakness vs. JPY developed despite a rather stable fundamental economic data like the Federal Reserve’s FOMC announcement and Non-Farm Payroll numbers.
  • USD/JPY Price Forecast: An evening start pattern has emerged against the 110 barrier and just below the 200-DMA. Such patterns tend to show a reversal and as a result JPY strength may emerge. However, it’s likely best to focus on weaker currencies than the USD if buying JPY.
  • USD/JPY Rate Insight from IG UK: biased lower on based on net-bullish USD/JPY bias Sentiment is utilized as a contrarian technical trading tool, which derives insight from our Traits of Successful Traders research

The Japanese Yen stopped falling before it could drop below the 200-DMA (110.30 JPY per USD) this week. What’s more important for technical traders is the patterned developed known as the evening star pattern that resulted in an unwind of the JPY short trade and a drop in the pair.

Access one of our most popular articles on reading candlestick charts here

What traders should be aware of is that JPY strength has already been prominent against other currencies like the British Pound, Euro, and Australian Dollar. Additionally, looking below at the scorecard utilized for the FX Overbought/ Oversold report shows US Dollar as one of the strongest currencies specifically against three currencies, the CHF & MXN. In other words, there may be quicker wins or lower hanging fruit if you’re looking to buy JPY than against US Dollar such as the EUR, GBP, or Australian Dollar.

Bonus: AUDJPY option risk reversals (highlighted below) are also showing a growing bias to pay a premium (i.e., protect like insurance) against increasing losses or AUDJPY lower over the next week and month after a rather dovish RBA.

G10 FX Momentum Scorecard RSI(3) - May 4, 2018

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Data source: Bloomberg

See what we see when looking at the Japanese Yen. Check out our new Q2 Yen Forecast here.

USD/JPY Rate Fails To Clear 200-DMA, Post Bearish Evening Start Pattern Instead

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Chart Source: Pro Real Time, an IG Charting Package, IG UK Price Feed. Created by Tyler Yell, CMT

USD/JPY failed to push above 110 this week, but further US Dollar strength may carry the pair higher.

I am looking to Ichimoku levels of the 26-day midpoint or Kijun-Sen (108.32) and the current top-line of the cloud (107.46) as key support before switching from my view that USD will strengthen further vs. the JPY.

New to Ichimoku? Click here for a free guide if you’d like to learn more

As noted above, that does not mean we will be without JPY strength in the market, just that the US DOLLAR would be a difficult play.

USD/JPY Insight from IG UK Client Positioning –Net Long Positions Favors Downside Bias

Source: IG CLIENT SENTIMENT, data provided by IG

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall.


Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer an excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

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DailyFX offers a surplus of helpful trading tools, indicators, and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities, and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

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