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Japanese Yen Struggles as USDJPY Breaks Long Term Downtrend

Japanese Yen Struggles as USDJPY Breaks Long Term Downtrend

2020-02-24 03:00:00
David Cottle, Analyst
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Japanese Yen Technical Analysis Talking Points:

  • USD/JPY has spiked above a downtrend line in place since mid-2015
  • This is almost certainly bullish, but it may struggle to maintain this altitude
  • GBP/JPY has seen no such range break yet

The Japanese Yen has been forced down to lows not seen against the US Dollar since the end of 2018 as the US currency gets the best of the fundamental haven bid as coronavirus spreads.

Traditionally of course both currencies offer considerable appeal to investors in times of uncertainty. However, the Dollar’s stronger home economy and the perception that Japan’s very proximity to China leaves it more vulnerable to contagion is punishing the Yen.

Technically speaking USD/JPY has soared above its previous broad trading range and, in the process, snapped a long-term downtrend line which had been in place since June 2015.

US Dollar Vs Japanese Yen, Daily Chart

This is exactly as it appears a very strongly bullish signal for the Dollar, but it remains to be seen whether the bulls can hold this important line.

It bears noting that the pair has leaped far above a broad range which has quickly been regained in the recent past whenever it has been traded out of, whichever direction he market broke to. That range also coincides quite closely with the 23.6% and 50% Fibonacci retracements of the rise from August’s lows to last week’s highs. Between them lies 38.2% support at 109.25.

Now of course we may have seen that range’s spell conclusively broken with the most recent upside break, but that is not certain yet. This market could probably do with some consolidation and it will be instructive to see how much lower that process takes it.

There is perhaps a pennant forming on the pair’s monthly chart.

US Dollar Vs Japanese Yen, Monthly Chart

This confluence of trendlines is usually known as a continuation pattern, which means that the previous market trend should resume once it resolves. That would clearly augur well for Dollar bulls as the pennant began to form as the pair rose from the lows of 2012 to the highs of 2015 and suggests that that rise may now resume.

USD/JPY MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -6% 16% 6%
Weekly 31% 8% 16%
What does it mean for price action?
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The British Pound has spent much of February rising against the Japanese unit too. However, it has yet to make the sort of clear upside range break seen in the US Dollar’s case.

British Pound Vs Japanese Yen, Monthly Chart

It’s certainly trying though, with the range top still very much in play. A conclusive break, perhaps going into this month’s close, will bring the highs of December 2019 back into focus but, given a likely pause for breath at least in USD/JPY it may be premature to bet on much lasting upside for Sterling at this point, with a resumption of trade back within the range probably more likely.

Japanese Yen Resources for Traders

Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

https://www.dailyfx.com/free_guide-tg.html?ref-author=Cottle.

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