The USDJPY is at a key inflection point. After being rejected from long-term channel resistance on several occasions, including the recent Bank of Japan decision, the pair finds itself hovering above critical support that dates back to the post-Brexit low at 98.80.
The ascending trend line currently intersects with the 100.00 handle. Whether or not this adds to the confluence factor is debatable. But one thing that isn’t controversial is the fact that this trend line has supported the USDJPY since mid-August.
As always, a level that has been in play for an extended period requires strong confirmation before further consideration is in order. In other words, I wouldn’t attempt to trade such a break (if one does indeed occur) on an intraday basis. Doing so exposes you to the risk of a false break, especially in these volatile conditions.
With this in mind, only a daily close below the three-month support level will signal that a larger breakdown is imminent. Of course, the final decision is ultimately yours, but this is how I would approach this particular trade idea.
So what kind of catalyst could trigger a breach of support?
I’m not saying it will be the cause, but the BOJ’s Kuroda is speaking at 2:35 am EST. If his address goes anything like the last one, we could see another bout of risk-off take shape.
A close below the level that extends from the post-Brexit low would target the 98.80 area. If we see risk aversion pick up over the coming weeks and months, there isn’t much standing in the way of a move toward the 2010 highs near 94.70.
Alternatively, a close above channel resistance that extends from the 2016 high would negate the bearish bias.
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