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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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USDJPY is once again approaching a key test for buyers. The trend line support in the chart below extends from the year-to-date low at 104.65 and single-handedly defines the uptrend that began in late March.
You may recall my post from October 9th where I commented how USDJPY looked ready to collapse. The pair was trading above 113.15 at the time. However, just a few days later on the 15th, the risk-sensitive pair was testing trend line support at 111.60.
That was a big moment for USDJPY bulls. Trend lines that extend from a year-to-date low like this one tend to serve as turning points if broken. In other words, the 2018 uptrend could come to an end if this trend line fails.
Based on what I’ve seen over the last few months, I’d say a breakdown is imminent. One of the more telling clues was buyers’ inability to hold onto 113.15 earlier this month. The pair is also starting to weigh on trend line support quite heavily which is an early warning sign.
Similar to yesterday’s EURJPY commentary, there are two ways to capitalize on the short side. The first option would materialize on a retest of 113.15 as new resistance. Bearish price action from this area could offer a chance to get short.
Alternatively, a daily close (using a New York close chart) below trend line support near 112.00 would open up downside targets. Those areas include 110.80 and 109.80.
The only thing that would reverse my (relatively) bearish outlook here would be a daily close back above 113.15. That would indicate that buyers have more fuel left in the tank. It would also re-expose the year-to-date high at 114.50.
As of now, though, I’m staying cautiously bearish. And if USDJPY retests trend line support again over the next few sessions, there won’t be much hope left for buyers.
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