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USD/JPY Rising Wedge Break Potential, 135?

USD/JPY Rising Wedge Break Potential, 135?

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USD/JPY ANALYSIS & TALKING POINTS

  • US and Japanese economic data will serve as key drivers for USD/JPY directional bias.
  • Rising wedge breakout looming.
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JAPANESE YEN FUNDAMENTAL BACKDROP

The Japanese Yen stares down the week ahead with keen anticipation as key economic events dominate the calendar (see below) for both US and Japanese economies. From a US perspective, markets will be looking for guidance around the upcoming Fed interest rate decision as to whether Fed Chair Jerome Powell hints at a move back towards a 50bps increment or not. Currently, money markets are caught in between the two levels (+/-30bps) and any hawkish commentary could see the greenback extend its recent strength against the yen. Labor data (Non-Farm Payrolls (NFP)) will close off the trading week with expectations markedly lower than the January surprise; however, a weaker than expected print may not significantly alter the long-term outlook as one data point does not make a trend. That being said, a miss will likely result in a dollar sell-off as USD longs seem to be over extended.

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The Bank of Japan (BOJ) has been in the spotlight of recent around the possible shift from there ultra-loose monetary policy. Although the newly elected BoJ Governor has stated that he will be continuing with Mr. Kuroda’s outlook, the potential for another revision to the range around 0% (currently +/-0.5% ) linked to Yield Curve Control (YCC) may be on the cards.

JPY ECONOMIC CALENDAR

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Source: DailyFX economic calendar

USD/JPY TECHNICAL ANALYSIS

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USD/JPY DAILY CHART

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Chart prepared by Warren Venketas, IG

Daily USD/JPY price action is at the precipice of a possible rising wedge chart pattern (black) break that could see the psychological 135.00 handle come into focus. This level may not hold for long should the breakout ensue, bringing into consideration subsequent support zones. The Relative Strength Index (RSI) seems to be losing bullish momentum and could supplement the basis for a bearish move.

Key resistance levels:

  • 200-day SMA (blue)
  • Wedge support

Key support levels:

  • 135.00
  • 133.63

IG CLIENT SENTIMENT BULLISH

IGCS shows retail traders are currently net short on USD/JPY, with 58% of traders currently holding short positions (as of this writing). At DailyFX we take a contrarian view on sentiment but due to recent changes in long and short positioning we arrive at a short-term downside disposition.

Contact and followWarrenon Twitter:@WVenketas

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

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