The USDJPY is in the process of testing the trend line I mentioned just two days ago. Buyers managed to clear the 108.50 handle following Monday’s commentary, leaving sellers with their last line of defense — former trend line support from September 2012.
Yesterday’s high at 109.20 retested the level as new resistance for the first time. However, despite the 40 pip selloff just before the session close at 5 pm EST, the USDJPY is already back to 109.20.
Keep in mind, too, that the 108.50 area is now serving as support. Notice how yesterday’s low was 108.54.
This leaves the USDJPY stuck between 108.50 support and (new) trend line resistance at 109.20/30. Of the two, the trend line carries more weight here in my opinion.
But before you rush off to sell the pair, note that the BOJ is on deck with a rate decision and statement. Although they don’t provide a time, we know from history that the events should occur sometime around 10 pm EST on Thursday.
Even if these events weren’t on tap in 36 hours, there isn’t much to do here just yet. Yes, the pair is running into some selling pressure at 109.20/30, but the price action remains relatively bullish in the short-term.
If the risk-sensitive USDJPY is destined to move lower over the coming weeks and months, this is where sellers will likely make their stand. Alternatively, a daily close (New York 5 pm EST) back above this trend line would be a bullish sign.
As you may well know, though, I wouldn’t buy a close above this trend line. One of my rules is to never buy upside breaks of ascending levels or sell downside breaks of descending ones.
For now, this is one for the watch list. A sell signal from current levels would take us back to the 108.50 support level with a daily close below that opening the door to 107.40 followed by 106.60.