USD/JPY to Reach Towards Resistance

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  • Pair risk-sensitive
  • Core Durable Goods Orders stronger than expected
  • Bounce from major EMA
  • Reach towards the 200-day EMA
Japanese Yen

The US dollar versus Japanese yen pair is highly sensitive to risk appetite, so this currency pair is always worth paying attention to. As a secondary indicator, quite often one can pay attention to the S&P 500 and others to stock markets around the world. These can suggest whether or not money is looking for more risk or, in the case of the Japanese yen, for some safety.

 Moving averages

usd/jpy chart

USD/JPY daily chart

The chart suggests that longer-term traders are stuck between the 50-day EMA, painted in red, and the 200-day EMA in black. By being stuck between these two moving averages, it will trick certain algorithms into going long, while others will go short. This causes a bit of compression in the market, but eventually, that compression leads to inertia in one direction or another.

By being stuck between these two moving averages, it will trick certain algorithms into going long, while others will go short

In the short term, the market has bounced from the 50-day EMA, which is bullish, as a lot of traders will pay attention to that. However, just above there is the 200-day EMA that will more than likely cause quite a bit of resistance. Beyond that, it is roughly at the same level where the market had broken down previously and the 50% Fibonacci retracement level. As such, it’s very likely that the market will struggle once it gets there.

A world of uncertainty

There is a world of uncertainty out there, and that will continue to make the Japanese yen somewhat attractive as money goes looking for safety. There are geopolitical concerns, an impeachment process in the United States, global slowing economic activity, Brexit concerns, the US/China trade situation, and who knows what next. Because of this, it’s very likely that any type of “risk-on” move will be difficult to hang onto for a larger move, without at least some type of good news to propel it. In that scenario, bouncing back and forth between these two moving averages will more than likely continue to be what the market offers.

The trade going forward

The trade going forward is more than likely going to be short-term based, perhaps using a tighter time frame such as 15 minutes or so. Looking for signs of exhaustion closer to the ¥108.50 level and support closer to the ¥107.50 level, traders will continue to bounce back and forth in more of a day trading range than anything else. Be aware, though, that if the 200-day EMA were to be broken on a daily close, that could change everything and send this market much higher. The same can be said if the lows from this week were broken to the downside, as we would reach towards the ¥105 level.

With that in mind, traders will need to keep two charts open: a short-term chart and a longer-term daily chart, as it will tell traders when it’s time to switch trading methodologies from essentially day trading to more of a trend trade.

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