Japanese Yen Technical Analysis: USD/JPY At Crucial Juncture

Talking Points:

  • Fundamental analysis clearly favors the US Dollar over the Japanese currency
  • However, USD/JPY bulls seem oddly hesitant
  • It would seem that something has to give

The year’s fourth quarter is under way. What will it bring? Check out the new DailyFX Technical and Fundamental Forecasts.

The Japanese Yen continues to weaken against the US Dollar and the are clear fundamental reasons why it should do so.

The re-election of Prime Minister Shinzo Abe this week holds out the prospect of enduring ultra-loose policy from Abenomics’ monetary enforcer, Bank of Japan Governor Haruhiko Kuroda. Abe’s return may also make it more likely that Kuroda will do another stint at the BoJ’s helm after his current term expires next April. Even if he doesn’t, a close disciple is now all-but certain to be appointed in his stead. The contrast between the BoJ and a US Federal Reserve still intent on raising interest rates as high as the economic data will allow is stark, and clearly Yen-bearish.

Technically however, USD/JPY looks hesitant. It has risen for sure, with an impressive run of gains logged since the market turned upward on September 10. However, bulls seem reluctant to push matters much beyond the previous significant peak. That was July 11’s intraday high of 114.51. For the moment a cluster of resistances below that level seem to bar the way up.

Coyness at this point seems puzzling, especially given that rather Yen-negative fundamental backdrop. Given the lack of cues from momentum indicators it would seem likely that Dollar bulls are girding themselves for another attack on that July peak. But they are taking their time about it.

If we zoom out and look at the year’s trading action so far on the weekly chart, we can see that USD/JPY is at an interesting juncture. For all the current US Dollar ascendency, the pair spent much of 2017 in a shallow but obvious downtrend. That downtrend had been short of serious challenges but now we seem to be right in the middle of one.

As you can see from the chart above, previous forays higher this year have tended to fizzle at or around current levels. If this one breaks that trend it could be a significant fillip for Dollar bulls.

The Yen looks perhaps even more pressured against the Euro. The single currency seems to have overcome any prospect of a meaningful retreat from 2017’s highs and, indeed, looks set on revisiting them. They’re only a whisker away now. EUR/JPY sellers don’t seem able to take the market below a band of support from earlier this month which comes in around the 131.70 area. This is looking more and more like a base from which the Euro will push higher.

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