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USD/JPY Bullish Reversal? Not Out of the Woods Yet

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Talking Points

-Japanese fiscal stimulus is anticipated to be significantly smaller than expected sending USD/JPY lower

-Prices dropped into previously cited support zones as USD/JPY tries to build a medium term base

-Technical structure remains bullish medium term and a break above 105.42 builds the case a low is in place targeting 111-115

Overnight, Japan’s finance minister stated the government has yet to make a final decision on the size of the recently announced stimulus package. Therefore, traders felt the stimulus coming out of Japan could end up smaller than expected. My colleague Christopher Vecchio says the stimulus program is anticipated to be 6 trillion Yen vs the expected 10 trillion Yen. As a result, the Yen strengthened driving USD/JPY lower.

The technical picture for USD/JPY continues to play out according to the playbook we highlighted on Friday. We were anticipating a sell-off that may turn into a bullish reversal at lower levels. One of the levels identified was 103.90. Today’s low thus far is 103.99. Therefore, it is possible the low is in place.

USD/JPY Bullish Reversal?  Not Out of the Woods Yet

The key level we’re watching is 105.42. Above here and we have overlap with the July 21 low and the case builds the low is set.

So long as we are below 105.42, we need to consider the possibility of one more dip lower to finish off the 5 waves down from July 20. Support levels to watch are 103.90 and 103.50.

Don’t lose sight of the bigger picture. The medium term technical picture suggests an important low may form nearby that could send prices shooting higher towards 111 and possibly 115. A break above 105.42 shifts the probabilities higher the move is underway.

In looking across other JPY crosses like EUR/JPY, GBP/JPY, and AUD/JPY, they appear to be building medium term bases as well. Therefore, USDJPY or JPY crosses may be an area of focus over the next several days.

Be mindful of market volatility potentially kicking up Wednesday afternoon into Friday morning. First, the FOMC concludes their 2 day meeting Wednesday afternoon. Then, Thursday night into Friday morning the BOJ is expected to present their latest monetary statement. Any surprises out of either camp could create some USDJPY volatility.

Lastly, keep an eye on live trader positioning in USD/JPY. The current SSI reading is +1.65. If this number moves significantly in one direction or the other, it could signal a price move in the opposing direction.

Having trouble trading USD/JPY? This may be why.

Interested in a quarterly outlook for USD and/or JPY? Download our quarterly forecast here.

—Written by Jeremy Wagner, Head Trading Instructor, DailyFX EDU

Follow me on Twitter at @JWagnerFXTrader .

See Jeremy’s recent articles at his Bio Page.

To receive additional articles from Jeremy via email, join Jeremy’s distribution list.

Check out the latest standings for the FXCM trading contest HERE.

Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email bysigning up here.

You can follow Paul on Twitter at@PaulRobinonFX.

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Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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