I’ve written about USDJPY a few times in recent weeks, pointing out 130.60 as support and 134.50 as resistance.
Despite their best efforts, bulls and bears have yet to break either level.
We’ve watched USDJPY ping pong between these two levels since 130.60 was first tested on December 20th.
However, the pair has to make a move within the next couple of days.
The descending channel resistance from October 21st means this is a terminal pattern between 130.60 support and 132.00 resistance.
A terminal pattern must end as these two levels intersect next week.
So USDJPY will be forced to either close below 130.60 or above 132.00.
Before we talk about possible scenarios for the pair, I want to point out a confluence of support for the US Dollar Index (DXY).
I’ve discussed this 102.00 region for the DXY before, but it’s a critical, multi-year support area for the dollar.
It’s the May 2021 trend line and a key multi-year level from late 2016.
The DXY chart above makes this feel like an extraordinary moment for markets as a whole.
That said, given how aggressive the dollar selloff has been since November, I wouldn’t be too quick to assume a DXY bottom.
As for USDJPY, a daily close below 130.60 would flip the level to resistance and open up the next key area at 126.70.
That would offer shorts a potential 390 pips, but only if we get the confirmed break.
Alternatively, a USDJPY daily close above the 132.00 channel resistance would re-expose 134.50.
Remember that any breakout here could turn into a fakeout. That’s especially true during the first few weeks of a new year as liquidity remains relatively low.
But regardless, USDJPY boasts some of the cleanest technicals in Forex right now, so I like the potential for a setup in the coming days.
