USD/JPY Testing 98.5

The strengthening of USD last week after Bernanke’s QE Tapering talks was a huge boost to the slumping USD/JPY, which was on its way lower after the capitulation of confidence in BOJ and Abenomics. Looking at Daily Chart below, we can see the strong bearish trend that has been in play since the turnaround in May – Price rebounded on 96.7 Mar highs only to be stumped by the Rising Channel Bottom and 98.5 resistance. This affirmed the initial breakout of the rising Channel back in early June. But bears are not done yet, with 96.7 broken eventually, sending price down to 94.0 on 16th June where current corrective recovery started.

Daily Chart
USD/JPY">
The initial correction from 94.0 to 95.0 shouldn’t be surprising, as it came on the back of strong bearish selling action. However, the ability for price to push above 96.7 is incredible, considering that it was done within a few hours after Bernanke’s speech. This relieved bearish pressure significantly, and opened up 98.5 as a viable bullish target – one that bulls willingly obliged and hit with apparent ease on Thursday and Friday. Early Asian trade today see price pushing up to 98.5, with a break potentially opening up 100.0 as a viable target if bullish pressure continues. Stochastic readings support this scenario with both Stoch and Signal lines pointing strongly upwards. Looking at current readings, it is possible that price may be able to rally higher and yet find resistance in the form of the Rising Channel Bottom. This may be in conjunction with Stoch readings reaching Overbought regions which suggest that a rebound from the Rising Channel Top is possible. In furtherance to this scenario, a holding of 100.0 – Rising Channel Bottom levels may result in a Head and Shoulders pattern (albeit with a slouching right shoulder).

All in all, longer-term technicals point to a bearish outlook, which is in line with what we are observing based on current fundamentals – falling USD/JPY due to erosion of confidence in BOJ’s ability to keep Yen weak, and is only disrupted in the short-term due to Bernanke’s shocker. Nonetheless, it should be noted that long-term technical bias will change rapidly should price trade back into the Rising Channel. This could be supported by Fundamentals as well, as it is currently still unknown how long the USD strength arising from Fed’s tapering timeline can last. Hence it will be good for traders to continue keeping an open mind for all possibilities but do lookout for price actions around various support/resistances moving forward to help formulate a clear directional narrative for 2H 2013.

Original post