The last time we discussed the USDJPY the pair had broken from an ascending channel and buyers had retaken the 111.40/80 region. Upon catching a bid in this area, the bulls extended the rally toward 114.55, which was our target for the setup.
In just 48 hours, traders had their 300 pips of profit.
Fast forward to today and the pair is once again battling the 114.55 handle; only this time buyers are fighting to hold prices above it.
A level such as this in combination with a daily close can act as a line in the sand between buyers and sellers. It can signal the most likely direction for the pair over the coming sessions.
At the moment, however, there is no signal one way or the other.
With that said, if today closes below 114.55, it would expose the next area of support between 111.40 and 111.80. This region was a key pivot for the pair between February and May of last year.
Note that I use a New York close chart, which means each session closes at 5 pm EST. Also, I wouldn’t consider a close at 114.50 or even 114.45 to be a “bearish” close. I like to treat these as areas rather than exact levels.
Furthermore, should today close well below the 114.55 area, I would need to see bearish price action on a retest of 114.55 before I’d consider an entry. The pair is a bit overextended at the moment so I wouldn’t be surprised to see some consolidation near current levels.
On the flip side, a daily close above this area followed by bullish price action would be a sign that this pullback has run its course.
It’s unclear what kind of volatility we can expect (if any), but Janet Yellen is scheduled to speak at the start of the Tokyo session at 7 pm EST, so expect some USD movement especially given the thin trading conditions.
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