Top Story

USD/JPY path of least resistance still to downside

The Dollar Index (DXY) gapped lower overnight as the outcome of the French election underpinned the euro, which makes up a big portion of the index. Despite the DXY’s weakness, the USD/JPY gapped higher as the news also undermined perceived safe haven assets such as gold and yen. But the gains for the USD/JPY were short-lived and the daily chart of the USD/JPY is currently displaying a bearish price pattern, which suggests that the gap may well be ‘filled’ completely in due course and there may even be a possibility for a deeper pullback.

As can be seen from the chart, the USD/JPY is in the process of potentially forming an inverted hammer candlestick formation after the gap up. This price pattern is typically bearish as it highlights a lack of willingness from the buyers to hold onto their positions. Thus, we may see some weakness follow-through in the upcoming Asian session.

But the USD/JPY has recently completed an AB=CD move and has climbed back above its 200-day moving average. Thus, the bears will need to chop some wood if we are to see new lows for the year soon. Specifically, they will need to push the USD/JPY beneath old resistance, now potentially support, at around the 108.90-109.45 area. If successful, we may then see an eventual drop towards the long-term 61.8% Fibonacci retracement level and prior long-term resistance at around the 106.50-80 area.

In term of resistance, the 110.50 level is now the key hurdle for the bulls. If we break though this level decisively then there’s nothing significant on the way up until 111.55, followed by the top of the bear channel around the 113.00 area.

But taking everything into account, I do think that the path of least resistance is still to the downside. I may change my view if the USD/JPY shows significantly bullish characteristics, like a reversal formation around a key support area such as around the 106.50/80 region. But there’s no such sign yet.

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.