JAPANESE YEN TECHNICAL ANALYSIS, TALKING POINTS:
- USD/JPY’s fall has been arrested at the second Fibonacci retracement of its recent rise
- This phenomenon can also be seen in the Nikkei 225
- There’s room for cautious bullishness as long as that prop holds both
Find out what retail foreign exchange traders make of the Japanese Yen’s chances right now at the DailyFX Sentiment Page.
The Japanese Yen is exhibiting a remarkable inverse performance to that of its home country’s benchmark stock index.
Just like the Nikkei 225, USD/JPY has slipped from recent peaks only to find that reversal limited by the second, 38.2% retracement of its rise. Of course, there are solid reasons for this apparent correlation. The Nikkei is an asset bought by investors when risk appetite is brisk. Meanwhile the Yen is a so-called haven. It makes some sense that one should rise when the other falls.
That key retracement level for USD/JPY comes in at 108.80, and it is here that Dollar bulls appear to be making their stand. It may be wise to see how this stand plays out however, as trade is likely to be clouded by month-end considerations at present.
Moreover, even if those Dollar bulls can hold the line, they’re still going to have to push back above early May’s peaks of 110.00 or so if they’re going to avoid at least the appearance of a head and shoulders pattern on the charts. That would suggest that USD/JPY made a significant top on May 21 and may well be headed lower.
For the moment, it might be best to keep a close eye on that 108.80 retracement level and to maintain a very cautiously bullish stance for as long as it holds on a daily closing basis. The range top at 110 should then be the upside target.
However, should 108.80 give way then the third Fibonacci level wouldn’t come in until 107.99, and there may not be much support for the pair in the 107s below that.
It will probably also pay to keep a close eye on the Nikkei too.
Meanwhile the Euro has been under general pressure thanks to worries about rising Italian euroskepticism, with EUR/JPY no exception to its rout. The cross seems to have found some pretty solid support, albeit at lows not seen for a year or so.
Euro bulls will still have their work cut out to get back to the 132 levels seen before this week’s falls. But they can probably be expected to keep trying as long as the European newsflow doesn’t deteriorate any further.
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--- Written by David Cottle, DailyFX Research
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