The US dollar has been stubbornly levitating against the Japanese yen for some time, but as you can see we have struggled to break out above the ¥112 level. This is an area that will be crucial over the longer-term, as it has been several times already. If we can finally break above here, that would bring good news for the US dollar in this market, and there are several places where we can watch for a bit of clarity as to risk appetite that can move this market.
The technical set up
The technical set up of this pair has been talked about ad nausea on trading floors around the world, as we certainly have a lot of bullish pressure. However, it is worth going over. The 50 day EMA has recently crossed above the 200 day EMA, forming what is known as a “golden cross.” That of course is a very bullish longer-term signal, but I would also point out that the “death cross” that occurred in early January was after the market already started to turn around. (The “death cross” is the exact opposite as you can see on the chart previously.) In other words, by the time you get the signal most people have already entered the market in that direction.
What is worth paying attention to is just how resilient the market has been as of late. The 50 day EMA is of course turning higher, and that certainly won’t hurt situation. The ¥112 level has been resistance and probably will be for another 25 pips or so. However, once we get the daily candle above there closing through this area, then we are talking about a market that could pick up momentum.
At this point it looks as if the ¥111.50 level is support and should attract a lot of buying pressure. There isn’t much on this chart does suggest anything negative, other than the fact that we’ve had a hard time breaking out to the upside. In the end though, it certainly looks as if it is approaching the “beach ball underwater scenario”, meaning that it could be much like a beach ball that’s being held underwater for too long. Once it finally breaks above the waterline, it shoots up in the air.
Watch the S&P 500
Watching the S&P 500 could be a bit of a leading indicator, because the two markets do tend to move in the same overall direction longer-term. The S&P 500 is trying to break out to the upside, but it has a lot of work to do as well. It’s possible that one of these markets will lead the other, so that could give you a bit of a “heads up” as to the move happening.
In conclusion
In conclusion, this is a market that should be bought on dips, there really isn’t much in the way of a selling set up right now. The ¥111 level underneath should also be supported, assuming that we break through the ¥111.50 level. That doesn’t mean that you jump in right away and with both feet, but what it does suggest is that you should be looking either for value, or a move to the upside.
