I discussed the USDJPY a couple of times back in mid-February. Following the close below the September 2012 trend line on February 13, we began looking for short entries for a move to key support at 105.50.
That level was reached just three trading days later on February 16. But even the bounce from 105.50 had us watching for short entries again between 107.70 and 108.00 per my February 20 commentary. Although a bit choppier on the way down, that too was a profitable trade.
However, since that time the price action on the USDJPY has been incredibly choppy. As such, I’ve remained on the sideline for about a month now.
Despite the last four weeks of consolidation, one thing we can discern is that 105.50 is still a significant support area. Sellers have tried to break 105.50 during six separate trading sessions including today’s retest.
As you can see from the chart below, they’ve been unsuccessful each time.
That said, with the pair struggling to move higher in recent weeks and carving lower highs, it seems a breakdown is only a matter of time. This is especially true considering the close below the 2012 trend line last month, which was a significant development.
From here things are pretty straightforward. A daily close (using a New York close chart) below 105.50 would expose the next key support at 103.70.
Ideally, I’d like to see a daily close well below 105.50 to clear the recent lows near 105.25. Either way, I’ll need to see how sellers respond to the 105.50 region following a daily closing below it.
I’m also keeping an eye on the mean as represented by the 10 and 20 EMAs. Note how the USDJPY has responded to this area since late January. Of course, there’s also a possibility that we see a sudden selloff like that of the 13th to the 16th of February.