Daily Price Action

USDJPY Capped by 111.70 – Here’s What I’m Watching


The USDJPY broke free from a descending channel on May 8th following the result of the May 7th run-off election in France. Apparently, the outcome was a welcome sight for market participants.

The risk-sensitive pair furthered its gains on May 9th with a close above the 113.25 handle. This is a long-standing pivot and very near the 50% retracement of the current 2017 range between 118.60 and 108.12.

In most cases, we’d begin looking for buying opportunities on a pullback to new support.

However, as I stated in the latest weekly forecast, there was something about the final two days of last week’s price action that didn’t sit well with me. In fact, here is what I wrote on Sunday:

On the surface, the USDJPY looks like a strong buy. It recently broke free from a descending channel and also held 113.25 into the weekend.

However, something isn’t sitting right with me. The decline that occurred in the final 48 hours of trade was arguably too aggressive to be a simple pullback. Corrective moves tend to drift lower rather than fall sharply like this.

I could be wrong, but the pair may give back the 113.25 level in the week ahead. As I mentioned above, the 112.40 region should attract a bid, but given the pair’s high sensitivity to risk, I’ll need to see a proper buy signal at support before considering an entry.

It’s a good thing we waited. The USDJPY didn’t quite find support at 113.25, and it certainly didn’t find a bid at former channel resistance near 112.40.

Wednesday’s risk off move put the pair back inside the channel on a daily closing basis. Not only that, but the pair closed below the key 111.70 level, and prices have remained there since the middle of the week.

All of this paints a rather bleak picture for the USDJPY and risk assets as a whole.

In other words, if the USDJPY can’t break back above the 112.00 area next week, chances are we’ll see the yen continue to strengthen. This is one reason I’ve mentioned pairs like the AUDJPY and GBPJPY over the last few days.

As long as the area between 111.70 and 112.00 holds on a daily closing basis, odds are we’ll see another retest of 110.10 next week. Below that, we have the current 2017 low near 108.40.

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USDJPY daily chart

Leave a Comment:

June says

Awesome as always… Thank you Justin.

Rauf Ahmad says

Awesome Setup

Abdul Mannan says

great analysis Justin… i also had that feeling that usd jpy may touch 109 & even lower in coming weeks or days due to M formation on weekly basis.
plz note that there was a mistake above : ” As long as the area between 111.70 and 112.00 holds on a daily closing basis, odds are we’ll see another retest of 111.10 next week”
retest u r talking about is of 110.10 & not 111.10 if i am correct.

Carol Capner says

I believe this down move is a correction C Wave on the 240. May move towards 1.11.81

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