TECHNICAL ANALYSIS OF USD/JPY

Currency strength – Which is stronger?

The Japanese Yen seem to be becoming stronger and stronger with time as compared to the US dollar which had previously carried the yen to new heights of about 125.00. The yen looks relatively stronger now nd eager to continue with this trend unless there is a major market news in the coming days that will weaken the Yen.

The USD/JPY fell back underneath the 100.00 level as the US Dollar relaxed from the effects of an article that had been published by San Francisco Federal Reserve President, John Williams

As of August 16, the JPY has strengthened by almost about 20%  versus the USD. This may be exaggerated by a conceivable rate hike in the coming 12-months from the Federal Reserve. Also, the absence of a Fed-Driven more grounded Dollar diminishes a majority of hopes for USD/JPY to push higher and further gives a reason for staying with the downtrend.

Also, Japan’s Finance Minister Masatsuga Asakawa noticed that while trading anticipated sharp market moves, they are keen to check out whether there are any theoretical moves. This announcement could mean they would only act if there is sudden strengthening of the yen by an undeniable short-crush that could mean a 5% reinforcing in one session.

What are the levels to look out for?

With the current market price actions, the prices seem to have a pivot point at the level of 104.29. If the prices breakdown past this level, you should probably go short with your target somewhere between 99.00 and 95.00. However, if the prices breakout and then consolidate above this level, you should look to go long with your target set somewhere between 109.00 and 110.00.

What are the signals by indicators?

  • Using a combination of 200-WMA, Andrew’s Pitchfork and the Ichimoku indicators

Using a combination of these three indicators signals some replacement on the general downward trend. Among the 3 indicators, the Ichimoku Cloud indicator is one of the first to register the Bullish signal on a break and close above the level of 105.20.  Then, if you use the 200-WMA, you can notice that there might be a breakout at the level of 107.40.

But if you use the Andrew’s Pitchfork, it does not completely agree with the others two indicators that there is a bullish trend fixing to happen in the near future. However, it also does not completely do away with the likelihood of a bullish trend beginning. The Andrew’s Pitchfork indicator shows that the Bear trend will likely come to an end when there is a break above the upper parallel line which sets squarely on the 38.2% retracement  level of the 12-Month Range at 109.00.

If these levels are broken by this month, and the Speculative Sentiment Index becomes negative traders could see the changing of downtrend as the JPY struggles to defend itself on a large scale while the USD dominates once again because of the result of a hawkish Fed.

  • Using the Fibonacci retracement levels

If you use the Fibonacci indicator, you will notice that the USD/JPY seems to start start pulling back from the Great Financial Crisis that happened to USD/JPY, pushing it down to new lows. Looking at the retracement from 125.85 toward 98.52 which is after the announcement of the Brexit vote, you will notice that there is a stabilization around the 50% retracement level of the year 2011 to the year 2015 range. There is also a support at the 2014 low just prior to the onset of the last upward trend leg. Although there are never guarantees in the financial markets, this seems to be a great place to get a  support prior to a solid shot at the the levels beyond the 110.00. Much of this was as a result of the prediction of both central banks playing their role in pushing the USD/JPY to higher levels.

  • Using the Speculative Sentiment Index (SSI)

We use the SSI as a contrasting indicator to price action. And the mare fact that most traders are long signals that the USDJPY may continue moving lower.

When looking at the SSI, the most notable thing is arise in the number of new short positions (sell orders). As of Friday the 9th of August, 2016, the ratio of long (buy orders) to short positions (sell orders) in the USDJPY stood at 4.18 which approximately shows that 81% of traders are going long.

On Monday the 12th of September, 2016, the ratio was 3.64 showing that an approximate of about 78% of the open positions were long. In this week’s SSI analysis, the Long positions are 3.6% above the levels witnessed last week. On the other hand, the Short positions are  0.9% below the levels witnessed last week. The Open interest is 5.5% above its monthly average

So, is it time to go long yet?

Looking at the fact that the USDJPY pair resumed its downwards trend yesterday, after going into the bearish channel’s resistance, approaching it from the first main anticipated target at 100.70, which sets at the 50% Fibonacci retracement of the entire range measured from the 75.55 level to 125.84 level. This level is much looked at since it is believed that breaking it may extend the the bearish trend to the target of 94.76 level.

If you use the EMA50, it supports the continuation of the downward trend in the following short duration, which only remains valid untill the market prices manages to breakout at the 103.05 level and hold there with a daily close above this level.

It is not yet advisable to place a long position unless it is a longterm order.

If you are a short term trader the expected trading range between the 100.00 support and the 102.00 resistance. Therefore, you can choose to open a buy order once the price nears the 100.00 level and close it midway between the 100.00-102.00 range or otherwise choose to open a sell order once the market prices near the 102.00 level and close it midway the range downwards.

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