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The US dollar has eroded a major portion of its recent gains against the Japanese yen currency as the recent reversal of fortunes in the US dollar index caused the USDJPY pair to slump back towards the 104.00 handle.
After finding strong resistance from the 105.80 level last week the USDJPY pair has been on a one-way journey south, placing the early-month recovery in jeopardy. Downside risks prevail for the USDJPY pair while the price is capped under the 104.50 level.
Traders will remember that the USDJPY pair started to explode to the upside after the 104.50 level was broken recently. A confluence of important trendlines are also found around the 104.30 support area.
The prospect of further stimulus from the Federal Reserve is no doubt helping to contain the upside in the USDJPY pair. However, the Bank of Japan are on a similar trajectory, and any hint of stimulus from the BOJ could help propel the USDJPY higher again.
Going forward, the direction of the US dollar index in the near-term is without question going to define whether the USDJPY pair continues to move lower, or indeed whether the recent recovery was the start of something more meaningful. Over the short to medium-term the March Bank of Japan meeting could have a major role in the direction of this pair.
Technical analysis can often give is a clear gauge of what the market is thinking, especially around key levels. The USDJPY is incredibly technical, hence why breakouts hold so much weight with this particular pair.
The bottom-line for the USDJPY pair at the moment is therefore the defence of the former breakout area around the 104.30 to 104.50 region. Watch out for the bullish short-term trend to continue if the mentioned region is defending or capitulate if broken.
According to the ActivTrader Market Sentiment tool some 59% of traders are bullish towards the USDJPY pair. The bullish skew is not significant, but certainly noteworthy. If bullish sentiment continues to rise while the price falls then I would have very real concerns that the recent breakout upmove would entirely reverse, and a new bearish trend may be beginning.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has formed a huge head and shoulders pattern. This a big concern over the short-term.
According to the size of the bearish price pattern the USDJPY pair could be about to decline towards the 103.30 area once again. Watch out for weakness below the 104.50 level to trigger the bearish price pattern into action.
Traders that are bullish towards the pair and do not believe the current down move may look to buy into the recent dip from around the 104.30 to 104.00 price area in expectation of a move towards the 108.00 region.
Source by ActivTrader.
USDJPY Medium-Term Technical Analysis
The Ichimoku indicator on the daily time frame shows that the USDJPY is testing the final line of Ichimoku support, around 104.50, prior to cloud support around the 103.80 level. The cloud extends down towards the 103.80 to 103.30 areas.
The recent up move found strong resistance from the top of the weekly Bollinger Band, around the 105.85 level. Please note that the mid-Bollinger Band on the weekly time frame is found around the 104.00 area.
Overall, expect a heavy sell-off of the 104.50 level is broken on a daily basis. It is possible that a strong bounce could happen from the 104.00 to 103.80 area, however, buying the dip is still a risky proposition.
Source by ActivTrader.
