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USDJPY Forex Analysis
Today is a bank holiday for the US markets so price action in the G10 forex markets is likely to be choppy or very range bound, until the US traders return tomorrow. Mainstream market analysts are still talking about Fed uncertainty, even though the jobs data that came out last week was generally good, and inflation is not running too hot.
The CME Futures Fed watch tool is currently stating that the probabilities of a rate hike/cut are 100% not expected at the next FOMC meeting and Chair Powell has been very clear that the FOMC will give the markets a lot of warning if they do think the time is nearer for policy change. So, for now it is probably best to watch the price action on the US dollar related charts.
There is a bit of uncertainty around the effect of expiring unemployment insurance benefits as the fiscal stimulus direct to the people that needed it the most, has been a floor in the markets, whereas the direct stimulus to those that didn’t need it as much has been extra money which has found its way into the markets.
On Wednesday we get to read the FOMC minutes from the June 15-16 FOMC meeting, and this may help clarify Fed officials’ views on the exit path. It will be interesting to see how the markets adjust with this extra layer of info, as the US dollar rallied after the FOMC meeting concluded and has recently found a level of resistance.
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The US dollar index is showing a potential reversal in momentum for those traders watching the stochastic divergence to price. The stochastic is signalling that the recent push higher was met with less conviction than the previous swing high and the confluence of reaching into a trend line resistance zone is technically weighing on the US dollar index.
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This phenomenon is echoed in the daily EURUSD (inverse), and weekly USDJPY.
The weakening US dollar is seen in the weekly USDJPY which is showing the potential signs of a divergence between price and the stochastic indicator, while the trader sentiment indicator on the ActivTrader platform is showing an extreme reading of 75% of traders on the platform as being bearish.
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With so many traders now bearish the USDJPY I can’t help but think the USDJPY goes against these traders with the next significant data point. The price action on the weekly chart is showing higher swing highs and higher swing lows and the moving averages have nearly created a weekly golden cross. One more impulsive move higher and the 50-period moving average should close across the 200.
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The H4 chart gives a clue to where the dynamic support resides, with the 200-period moving average, a rising trend line and the 110.00 all confluent currently. The two big levels below are 110.00 and 109.00 and for me the most significant swing low was printed in early June, so I would be more bearish if the June lows were taken out.
The YouTrading heatmap shows that intraday trading is favouring the yen and that the US dollar is mixed, so we could see a push towards the 110.00 today on the USDJPY today and early tomorrow. These dips in the USDJPY should give traders some good buy the dip opportunities and buying as close to where the bullish price action is invalidated will give the best risk to reward ratio.
