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USDJPY Follows Equities Lower; More Pain in Sight

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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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Just when it looked as though USDJPY would test 113.15 as new resistance, the risk-sensitive pair tumbled overnight. Prices are once again being dragged lower by a selloff in global equities.

I first touched on the likelihood of a reversal on October 9th. As you can see from the title of that post, I didn’t mince words when describing my outlook for USDJPY. It had become pretty clear that buyers were running on fumes.

Fast forward to today, and the pair is right back to testing the 2018 trend line I’ve been discussing for several weeks. That level, by the way, begins with the March low and connects with the lows on August 21st and September 7th.

You’ll notice the same trend line support also triggered a bounce earlier this month on the 15th. The fact that USDJPY is pressuring this area again after just six trading days suggests a breakdown is imminent.

For those who have read my lesson on how to measure trend strength, you know that repeated retests of a trend line with increasing frequency is a red flag for momentum. It’s an indication that buyers or sellers are exhausted.

In the case of USDJPY, it’s buyers who are fighting for survival. Because the trend line in the chart below extends from a year-to-date low, there’s an excellent chance that a close below it would trigger a multi-month unwind.

The first key support to come into play following a breakdown would be 110.80. It’s by no means a perfect level (they rarely are), but you can see how the area has played a significant role since the second half of 2017.

Below 110.80 we have the August low near 109.80 followed by the 108.50 region. I have no doubt there will be other significant levels along the way, but those are the ones I’m keeping an eye on for now.

Note that as of this writing the 2018 uptrend that began in March is still intact. Until sellers can clear trend line support near 112.00 on a daily closing basis (New York 5 pm EST), we’ll continue to see bounces from support.

Keep in mind that if today’s risk-off move intensifies, there is a decent chance USDJPY could break 112.00 support and never look back. That’s something to consider if you’re one who likes to wait for retests following breakouts.

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USDJPY year-to-date trend line support

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5 comments
Sydney says

Mentor!!!!!!!!!!

Reply
Ed says

Hi Justin. What is going on now on UsdJpy?

Reply
    Justin Bennett says

    It’s rallying. 🙂

    Reply
Antohi Dan says

In addition, I drew a line of resistance on the USD / JPY weekly chart starting from May 31, 2015 to November 5, 2017 and I continued it so that the daily chart was noticed that it was supported for days 15.10.2018 and 26.10.2018 which showed that the trend would be rising in line with the upward trend that you presented from 26.03.2018 continued on 21.08.2018 and 07.09.2018 – an extra confirmation!

Reply
    Justin Bennett says

    Thanks for sharing!

    Reply
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