USDJPY Looks Ready to Collapse

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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.

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The USDJPY has had a nice run since the beginning of September. We looked at the pair last month when buyers were approaching the 112.15 area and again at 113.15. The former even offered a chance to get long during the September 20th retest of 112.15 support.

However, the risk-sensitive USDJPY hit a brick wall last week at 114.50. There are several highs dating back to December 2016 that make the area stand out.

So far this week, market participants have picked up where they left off on Friday. Yesterday’s session dropped to a low of 112.82 before managing to close the day back above 113.15 support.

You can see how buyers are doing their part once again today. They’ve brought USDJPY back to life after hitting a session low of  112.93.

But before you think of buying the pair, let me shed some light on what’s happened here since the July swing high at 113.18.

What’s interesting in the chart above is the angle of the two resistance levels. Note that the one connecting the May and July highs does not run parallel to trend line support.

And the one that connects the July swing high to the year-to-date high at 114.54 is at an even steeper angle. In other words, buyers are struggling to keep this uptrend intact.

If they weren’t struggling, we would’ve seen USDJPY extend to 115.30 or even 116.00 this last time around instead of retreating at 114.50. Of course, there’s still time for buyers to make that move, but recent weakness doesn’t look promising for bulls.

The takeaway here, in my opinion, is that USDJPY is not suitable for buying right now. I have more interest in fading this rally than jumping on the bullish bandwagon this late in the game.

For now, 113.15 is the support level sellers need to break on a daily closing basis (New York 5 pm EST). As long as the pair remains above this area, there’s a decent chance for a bounce to 113.50. Perhaps even a move back to 114.50.

A close below 113.15, on the other hand, would expose the confluence of support at 112.15. It’s the intersection of a key horizontal level and trend line support from the year-to-date low. A break below that could very well bring an end to the 2018 rally.

There isn’t much to do for now, but keep an eye on whether or not sellers can break 113.15. If they do, we could see this uptrend start to unravel at a fast clip.

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