Tanalys

USD/JPY Technical Analysis: Q2 Opening Range In Focus For Yen

DailyFX

Talking Points:

USD/JPY did not end the week holding onto gains that had been accrued on month- and quarter-end USD strength. The US Dollar had a volatile week as many Fed Speakers took to the airwaves to share their view of what is to come in term of the monetary policy, and across the board, we see a confidence in the Dot Plot projections that were shared earlier this month when the Fed raised rates.

What’s worth knowing is that Economic Surprises, measured by the Citi Economic Surprise Index, has been on a sharp rise since October. Naturally, Economic Surprises do not persist, which means to me that the Fed holding to their prior views in light of improving economic data may limit the upside for the USD unless other currencies like the EUR or JPY begin to weaken aggressively.

As Q2 gets underway, what happens to the outlook for the USD (access our Q2 Forecasts here) will become important and could take USD/JPY lower. We already have strong data, so it’s hard to credibly extrapolate a similar gain in economic data going forward, which could limit the upside in Treasury Yields, which could also limit the upside in USD/JPY going forward.

March 31, 2017, Strong/ Weak Rating (JPY Strong/ NZD Weak)

The technical picture aligns nicely (for the bears) with the fundamental picture. The chart pattern that we recently focused on was a bear flag pattern, which is identified from a consolidating pattern that finishes by rejoining the trend, which for 2017 has been lower.

The price target for a bear flag breakdown is a 100% extension of the first move lower from the lower high. Where traders should take note is that the bear flag target (108.400 is a mere 20 pips away from the 200-DMA (108.20). This makes for a nice price target on the downside if you are a trend follower and a nice stop losslevel if you are a trader looking to buy USD/JPY before a presumed move higher.

For now, the bias will remain lower with obvious counter-trend moves along the way that are expected to lack follow through. Traders can watch the Ichimoku cloud on the H4 chart for shorter-term traders or Daily Chart for longer-term traders to find invalidation of the bearish view.

A move above 114 would argue that the breakdown on the bear-flag did not have the follow through and momentum to carry through, but I would watch UST Yields move above resistance as well as an Intermarket confirmation on such a countertrend development.

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D1 USD/JPY Chart: USD/JPY Trading Lower On Validated Bear Flag Breakdown

Chart Created by Tyler Yell, CMT

USD/JPY Sentiment: Japanese Yen may weaken into support vs. USD

USDJPY: Retail trader data shows 69.7% of traders are net-long with the ratio of traders long to short at 2.3 to 1. In fact, traders have remained net-long since Jan 09 when USDJPY traded near 117.477; price has moved 5.2% lower since then. The percentage of traders net-long is now its lowest since Mar 23 when USDJPY traded near 110.992. The number of traders net-long is 0.5% lower than yesterday and 2.5% lower from last week, while the number of traders net-short is 19.9% higher than yesterday and 20.1% higher from last week.

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

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Shorter-Term USD/JPY Technical Levels: Friday, March 31, 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

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