Analys från DailyFX
USD/JPY Technical Analysis: 14-Month Low Revives Reversal Focus
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Talking Points:
- USD/JPY Technical Strategy: New 14-Month Lows Favor Selling Rips
- USD/JPY Broke Below Recent Low Lower Highs Seen As Resistance
- JPY Returns to Strongest G10 Currency as Risk Sentiment Sours
As the Lunar New Year gets underway, we are seeing a gappy environment meeting souring sentiment. USDJPY and JPY crosses across the board turned sharply lower and a key support zone around the daily range of the December 2014 low, which has supported price multiple times, has now broken. This price move turns our attention back to the larger bearish view of the head and shoulder’s bearish reversal that could take us back to the 110-106 zone.
A Mirror Image of the Bottoming Process?
The chart above shows the similarity of the bottoming process in 2011/12 and the potential topping process over 2014-2015. The 40-WMA shows a recent pivot off the price after the USDJPY had its largest one-day gain in over a year after the Bank of Japan cut interest rates to -0.1%.
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Given the turn lower of USD/JPY off the 40-WMA (same as 200-DMA as you will see on the chart below), and the pattern that is common at market turns, a move lower could be very aggressive. At the start of February, the market has effectively priced out a favorable probability until February 2017. Therefore, the US Dollar has seen some wind taken out of its sails, but the JPY could continue to strengthen should the downside momentum gather steam as investors’ price in more and more bad news.
February Favoring Further USD/JPY Downside?
The chart above shows an effective price channel that is drawn off key pivots at the begging of this 4-year rally off the bullish head shoulders pattern that has done a fair job of framing price action. You can see from above that after the price has broken below channel support, price popped higher on the BoJ negative rate announcement, only to treat prior support as likely new resistance.
The chart above shows a likely turning sequence that is just gaining momentum to the downside. Today’s break to 14-month lows opens up the question of where resistance might be found for USD/JPY bears to look to join for a new downside run with a better risk: reward.
Given the recent drop from late January to this morning, traders looking for a retracement should focus on the zone comprised of the 38.2-61.8% retracement for entering with less potential risk than entering on an extension. The zone goes from 117.65 up to 119.185.
On the downside, the targets of 110 106 align with a 61.8% move in the direction of the bearish head shoulder’s move and a 100%, and more common target respectively. What is fascinating about the latter target is that the 106.60 level aligns with the 38.2% Fibonacci retracement of the 2011-2015 range.
If we see a reversal or medium-term retracement in USD/JPY, the 38.2% is often a minimum target. The fact that the 106 zone combines with the head and shoulder’s target heightens the probability that we could see 106 hit if JPY were to strengthen on an aggressive risk-off move for the rest of Q1 2016.
T.Y.
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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
—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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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
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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