Analys från DailyFX
USD/JPY Technical Analysis: Purposefully Playing To Lose
Talking Points:
- USD/JPY Technical Strategy: low volatility in USD/JPY tends to beget high volatility, be warned
- Yield spread tightening biggest downside risk for USDJPY
- USD/JPY Trying to Put in a Ceiling at Mid-118.00s?
Our last piece highlighted the potential for a pullback developing on swing charts. Given the strength of the uptrend that has relied on the Bank of Japan playing to lose the yield spread game via Yield Curve Control, caution should be exercised on the strength of move lower above the December 30 low of 116.04.
The important thing to note with USD/JPY given the previous price action that has traded sideways since the Federal Reserve announced on December 14 not only a 25 basis point rate hike that was widely expected, but shifted higher the median Dot Plot by 25 basis points, which nearly acted as a twofold like on December 14. Given the surprise of the higher Dot Plot, many traders are focused on Wednesday’s FOMC Minutes that will help explain in detail the view held inside the Fed about future monetary policy given the easing bias held by other developed country central banks.
Before we dive into the charts, it is worth noting that sideways moves in USD/JPY tend to proceed a strong move so traders should be warned. The chart below highlights periods of consolidation in USD/JPY that eventually led to sharp moves.
Specifically, traders keep an eye on support at 116.04, the December 30 low, because a break there could open up a sharp retracement against the post US election rally that is caused USD/JPY to appreciate by 17%. Two levels to watch on a further breakdown would be the 23.6% retracement at 114.53 followed by the 38.2% retracement of the post-election rally at 112. A hold of 116.04 could mean the strong rally set to continue and move toward the 2016 high of 121.63 is in the works.
As mentioned above, the Bank of Japan is doing everything in their power to keep the yield spread as wide as possible, which has extended the effect of the rise in U.S. Yields. Any tightening of the yield spread between UST JGBs would likely be a catalyst for retracement, even a short-lived one.
D1 USD/JPY Chart: USD/JPY Notorious For Trading Sideways Before Big Moves
Chart Created by Tyler Yell, CMT, Courtesy of TradingView
Shorter-Term USD/JPY Technical Levels: January 4, 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.
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.
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
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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