Trade idea: USD/JPY

With triple resistance seen around the ¥125 to ¥160 level, the monthly USD/JPY chart is quite interesting at the moment.

Yen
Source: Bloomberg

Naturally, the monthly chart is nicely utilised to gain a big picture view and one generally wouldn’t trade off the chart without honing into a short-term timeframe. However, the strength of the resistance is such that it’s worth pointing out the various oscillators that are starting to roll over; this could be the start of something much more significant. Time will tell, but it is clear from the monthly chart that those calling for ¥130 in 2016 are going to find it hard graft.

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If we focus on the four-hour chart, good resistance can be seen coming into the market on moves into the 61.8% retracement of the August sell-off at ¥121.80. We can see this proved to be strong resistance on 31 August and I would expect sellers at this level again. To become more bullish in the short-term I would want to see a break of ¥121.80.

On the support side, we can see a rising trend line in play at ¥119.30 and a break of this level would certainly garner my interest.

Specifically, if we see an initial sell-off after a break of ¥119.30, a subsequent reversal and re-test of this former support and then strong selling coming into the pair would be a strong sell signal. As we know, traders will quite often sell an initial support/trend break and a stop loss run before a reversal occurs. It is important to not get caught in the initial euphoria; it’s advisable to watch price after the break and look at the market behaviour. The best time to trade is always on a subsequent rejection of what was previously support or resistance.

The longer-term picture on USD/JPY is becoming quite interesting and while the fundamental picture favours a move higher (based on central bank policy divergence), the technicals are far from convincing.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.