— Technical Overview —
The USD/JPY continues to be in a strong uptrend. Since October of 2014, the pair managed to break above the 50% Fibonacci retracement of the 147-75 bear run and opened the month of January above the 61.8% retracement level.
Nothing on the monthly chart currently indicates that the bullish trend is over. However, one must be cautious because the pair has traded above the upper Bollinger band for 4 straight months. While this may not stop the trend, it could put some pressure on the pair to consolidate at these levels. The stochastic indicator is also at elevated levels.
In this timeframe, a strong uptrend is still visible and the pair is currently in a range between 115.50s and 121.80s. Recently, buyers continue to step in at the 116 level.
Within the range, we’re starting to get slightly more bearish as the pair closed below the key 118 level during the week of January 12th. There was also a lower high at the 120.60s level combined with a double top on the stochastic indicator. To confirm this bias, we would need a lower low on the weekly chart, which would also mean a break of the key 115.55 level. This is in the current “line in the sand” and would be a significant event.
The daily chart further confirms the range between 115.55 and 121.83. Friday’s bullish engulfing candle off the bottom of the range and the lower Bollinger band suggests that we’re likely to stay at these levels for now. The stochastic indicator is also near lows at these levels, giving further support (note that this indicator is best for a range rather than a trend). As a side note, one could also claim a possible “double bottom” at the 116 level. The counter argument to this is that double bottoms work best after extended bearish trends (not the case here).
The negative bias on the daily is the multiple closes below the 118 level and the 55 daily moving average.
4 Hour Chart:
Here we see the buyers coming in twice at the 116 level. A potential for a double bottom here is legitimate after the downward trend from 119.70. The pair is currently trading near the 117.70s neckline zone. The pair has also closed above a minor trend line from 119.70s.
Until now, the pair has been forming lower lows and lower highs from 119.70s. If it can break above 117.70s/118, it will start to diminish this short-term bearish trend and give some upward fuel for the pair.
The double bottom potential is also clearly seen in this timeframe. At the end of Friday, the pair was ranging between 117.30s and 117.70s. A breakout from here will be the clue in regard to the pair’s direction.
— Multi timeframe SUMMARY —
Given that the pair is in a range, we’re unlikely to see moves from long-term players. As long as the pair stays above 115.55, the uptrend remains intact and they’re likely buying on the dips to 116. If we were to see a break below this key level, it’s a different ballgame.
We’re then with the players off the daily and 4-hour charts. On the daily, these traders are playing the range as we can see from the bullish engulfing candle on Friday. Combined with the double bottom potential on the 4-hour chart, this suggests that we see some upside to 118, followed by 118.70s – where we encounter a minor trend line from 120.70. The 119.10s zone would be the target for the double bottom and also coincides with the 200 moving average on the 4-hour chart.
This 118.70-119.10s zone is the middle of the range and will serve as strong resistance (118.80s is also the 61.8% Fibonacci retracement of this last 120.73-115.81 bear wave). I see trades up to this zone as high probability (from current level). If the pair trades above the zone, we’re likely to see a re-test of 120.70. Given the current bearish-bias around equities, I see this upper level re-test as a lower probability event.
— Trade Ideas —
Unless the risk environment changes on Monday:
1) Buy at 117.30s-117.70s targeting 118.70s – the stretch would be 119.10 (latter requires short-term trend line break and is double bottom target range). Stops at 116.80-117.20 (depending on entry).
2) Sell at 118.70s; target: 118.10; stop: 119.05
3) Sell at 119.70s; target 119.10s stop: 120.07
3) Buy at 117; target: 117.34 or 117.60s; stop: 116.70
4) Buy at 117.75; target: 118; stop: 117.60
— Key Fundamentals —
* Strong trend data from the US // Weak from Japan
* US rate hike expectations
* Potential: Quantitative easing from the European Central Bank
*Softer Chinese data
* Lower US yields
* Tail-risk: Problems in the energy sector (due to drastically lower oil prices) and problems in Russia