Analys från DailyFX
USD/JPY Technical Analysis: Avoid The Low VIX Trap For Buying JPY
Talking Points:
- USD/JPY Technical Strategy: watching following price move from 112.61 to build bias
- Previous Post: USD/JPY Technical Analysis: An Intermarket and Technical Powderkeg
- SSI is currently +1.6056 onUSD/JPY as 62% of retail traders are currently long: To stay up with the Speculative Sentiment Index, please click here.
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There is a lot going on with correlated markets to USD/JPY that should keep your attention. Many traders are familiar that the VIX, which remains near historically low levels of 12 is inversely correlated to USD/JPY or positively correlated to the JPY due to the unwind of the Carry Trade. The VIX is the SPX500 Implied Volatility Index, also known as the fear barometer, so a higher VIX implies more fear and therefore wider possibilities for SPX500 prices over the coming year. The combination of a low VIX and high or “overbought”SPX500 aligns, most often, with a stronger JPY and lower USD/JPY. The persistent decline in the VIX has seen USD/JPY bound around 112.
We noted in the recent article title, USD/JPY Technical Analysis: An Intermarket and Technical Powderkeg, that there is a lot going on behind the scenes that could cause USD/JPY to move and move big. Another positively correlated market is UST Yields, which have been unable to breakout higher (bond prices pushed lower) but have received news that the Fed appears ready to hike multiple times in 2017 as they are sitting near the targets of both mandates of price stability (inflation at 2%) and full employment.
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Many traders may look at these events and think that we’re about to see a breakout in the VIX and that the SP at all-time highs means that a crash is imminent. While the future is unknown by definition, one should be a caution to attribute a fixed outcome to the future as the VIX seems to show less fear than in times past. If this is correct, we could continue to see the SPX500 push higher alongside USD/JPY finding upside traction.
Looking at the chart below, you can see that the price of USD/JPY is no longer trading within the Bearish countertrend channel. The price move higher in mid-February has seemed to put USD/JPY on an upward trajectory with price support near 112.61/88 that should hold our attention.
If the VIX remains lower, and the price of USD/JPY continues to trade above 112.61, we can begin to subtly shift our bias higher, which would be validated on a break above 115. A move above 115 in USD/JPY would align with a nice continuation move in the newly drawn Andrew’s Pitchfork as well as show a breakout above the Daily Ichimoku Cloud.
Conversely, a breakdown and close below the early February low of 111.59 would keep us neutral as USD/JPY continues to correct a multi-year uptrend. The takeaway is that even though the VIX seem ready to breakout and the SPX500 appears overbought per RSI going back multiple decades; it could be an expensive mistake to presume we’re about to see a breakdown in USD/JPY and try and short the pair without validation of a move below 111.594. If the price can work it’s way higher in Andrew’s Pitchfork that is biased higher, my bias will be higher as well.
H4 USD/JPY Chart: USD/JPY Trading Above Counter-Trend Bearish Channel Recent Range 61.8% Fibo
Chart Created by Tyler Yell, CMT
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Shorter-Term USD/JPY Technical Levels: February 22, 2017
For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.
Contact and discuss markets with Tyler on Twitter: @ForexYell
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
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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
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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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