USDJPY: New Battleground Is 113.15

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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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I’ve been discussing a rather bearish outlook for USDJPY throughout October. The way buyers struggled to extend rallies in July and early October was a bit concerning. Then came the aggressive selloff during the first half of the month.

I was using the trend line that extends from the year-to-date low as a barometer for trend strength. The idea was that a daily close (New York 5 pm EST) below the trend line near 112.00 would open up downside targets.

That break came last Friday. On Sunday, I mentioned how the 112.00/40 area would likely attract sellers if tested this week.

However, buyers had other plans. Instead of selling off from the area, they closed Monday’s session back above the 2018 trend line.

For those who read what I wrote on Sunday, you knew that a daily close back above 112.20 would negate the bearish outlook. Worst case scenario, Monday’s close at 112.35 cost you just 15 pips if you entered at 112.20.

Here’s what I wrote on Sunday:

Alternatively, a daily close back above the year-to-date trend line (currently near 112.20) would negate the bearish outlook.

And if you were waiting for bearish price action to develop, well, you never entered as nothing worthwhile formed during Monday’s retest.

As it stands, Friday’s close below our trend line was a false break. Chalk it up to the fact that it was an end-of-week breakout which tends to be less reliable.

I also included something to that effect in Sunday’s commentary.

My only reservation is that the breakdown occurred on a Friday. Since volume tends to dry up before the weekend, Friday breakouts can be less reliable than those that occur mid-week.

Before you get too bullish here though, keep in mind that USDJPY is testing the 113.15 resistance area today. I’ve pointed out this level a few times in recent weeks as it’s the (prominent) July swing high.

If buyers can clear 113.15 on a daily closing basis, it would give me a reason to suspect further gains toward the year-to-date high at 114.50. But until that time, I’d be very careful not to get too bullish here.

For now, this is a “wait and see” market. The last few months of price action still give me a reason to suspect weakness ahead, but Friday’s false break and this week’s strength are enough to give me pause.

Do keep an eye on the daily price action at 113.15 though. The area promises to be the new battleground for USDJPY over the next few sessions.

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