The US dollar has been probing against the key 104.00 resistance level against the Japanese yen currency this week, as the recent recovery from the 103.30 support area finally starts to gain upside traction.
Traditionally, risk-off market sentiment has caused the USDJPY pair to weaken, as traders and investors move into the safety of the Japanese yen. However, market dislocations are becoming increasingly evident this year. The US dollar has been the big safety play for traders when sentiment starts to take a hit.
The ongoing theme of mixed US economic data and doubts about the speed of upcoming US stimulus being implemented have helped the USDJPY start to recover back towards the 103.80 to 104.00 area.
Last week, the USDJPY pair started to sell-off after the US dollar index failed to build on its early month’s gains. Make no mistake, the US dollar is the key driving force in the foreign exchange market at the moment. Traders and investors are all too aware that any shift in US inflations expectations and central bank policy could cause a major move in the greenback.
Periods of price consolidation are not uncommon for the USDJPY pair. This typically lively pair has been fairly muted by a lack of new direction from the Bank of Japan, hence the major focus on the US dollar dynamic within the USDJPY pair.
Undeniably, the USDJPY pair is finally balanced at the moment from a technical perspective. A sustained break above the 104.00 level could catapult the USDJPY pair into a much-higher trading range in the short-term.
The opposite is also true for the downside potential of this pair. A fresh low under the 103.30 support level could cause bulls to throw in the towel and send the USDJPY back towards 102.00 and possibly the 100.00 benchmark level.
A breakout in the US dollar index is sorely need for the USDJPY pair this week. I suspect the eventual direct of this pair will be higher, however, US economic data, FED policy, and a break from the 103.30 to 104.00 price range will likely decide the next major directional move in the exciting currency pair.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair is pressing-up against a critical trendline. The trendline is taken from a large falling wedge price pattern, which the pair has been trapped in for several weeks.
A price explosion towards the 105.00 to 105.50 level could take place if a break above the 104.00 level finally happens. Failure to overcome the 104.00 level could see the USDJPY pair smacked down towards the 103.30 and potentially the 103.00 level in the shot-term.
Traders should note the big upside resistance levels above 105.50 are found at 106.20 and 107.00, while major support below 102.70 comes in at 102.00 and 101.20.
Source by ActivTrader.
USDJPY Medium-Term Technical Analysis
The main problem for medium-term USDJPY bulls at the moment is the fact that the pair continues to set new weekly lower lows. However, some encouragement should be taken from the fact that bulls continue to show up on dips.
Source by ActivTrader.
The Ichimoku indicator on the daily time frame shows that the USDJPY pair could surge towards the 106.60 level if the final line of resistance is broken around the 104.50 level. In summary, watch out for a major medium-term breakout if the 104.50 level is overcome.