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USDJPY Trades Near 2018 Highs As Factors Multiply To Support Rise

USDJPY Trades Near 2018 Highs As Factors Multiply To Support Rise

Tyler Yell, CMT, Currency Strategist

USD/JPY Rate Forecast Talking Points:

  • The ONE Thing: Factors are converging that seem to favor further upside in USD/JPY as the sentiment per the equities market in Tech, and Financial remain buoyant, and the US economy is enjoying a nice basis of positive data surprises.
  • For years, USD/JPY has been in consolidation mode after topping out at 125.85 Yen per USD in mid-2015. Now, traders are bracing for the potential of a multi-period breakout.
  • Trade wars have been in the news. If you’re not familiar with trade wars and their history, We've got you covered.

KEY TECHNICAL LEVELS FOR JAPANESE YEN RATE TO US DOLLAR:

Overall Bias: Bullish above 3yr. Trendline & the Weekly Ichimoku Cloud

Resistance: 114.20 Yen per USD, November closing high

Spot: ¥112.33 per USD

Support: ¥110.45 9-week midpoint

Let’s Count the Supporting Factors for USD/JPY upside

When market leaders like Google & Bank of America are breaking out in the equities market, it’s hard to argue for risk-off sentiment to pull USD/JPY lower. When looking through our Q3 JPY guide, we focused on the headwinds and tailwinds of the pair, but at present, the tailwinds seem to be edging out.

In addition to the positive risk-sentiment seen in equities markets, it’s hard to argue against the US Dollar. In FX, traders often look to interest rates and interest rate differentials to gauge potential currency strength.

In recent days, the yield on the 2 Year US Treasury has risen to a post-crisis high near 2.6%. The widening yield differential on the front-end has allowed the USD to trade at a sharp premium YTD against many developed and emerging market currencies.

USDJPY Chart: MACD > Zero (Bullish) As USDJPY Holds above Ichimoku

USDJPY Trades Near 2018 Highs As Factors Multiply To Support Rise

Chart Source: IG UK Price Feed. Created by Tyler Yell, CMT

Technically Speaking on USD/JPY:

Technical traders are heavily focused on two questions when looking at the USDJPY chart. First, what can stop the momentum up to key resistance at 113.75/114.75, and might we be entering into a period of cyclical upside in USDJPY?

For the first question, a key hurdle and key tailwind are worth mentioning. As for the hurdle, traders are watching the 200-Week Moving Average that sits at 113.275. While that is unlikely to cause a sharp reaction if price touches or breaks through, the 200-WMA can be a strong signal of broader market sentiment.

Regarding a tail-wind, traders should look to a long-term trend study of Ichimoku and MACD on a weekly chart. The MACD (5,34,5) shows a break above the zero-line, which can show we’re entering into a period of broad USD/JPY strength. The false signal will come if we remain in a broader consolidation as we have when been in since 2015.

However, beyond and more significant than the MACD (at least, to me) is the weekly Ichimoku signal that may be showing a key breakout of price and momentum. Again, we’re not out of the woods yet (a trader can never be too sure,) but it’s worth noting that Ichimoku along with the fundamental factors could be aligning for a move to and beyond 114.

Traders should note that through most of 2017, we topped out in this region. However, while Elliott Wave analysis would call those moves corrective highs, if we’re moving out of a correction and into an impulse, looking to add to pullbacks with a view higher will be my play.

More Support For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q3 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.

---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.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

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