Good day, dear colleagues!
As I have repeatedly noted in previous articles and it is no secret to anyone, the US dollar strengthened against all major competitors last week. The Japanese yen is no exception, but the last weekly candle does not give a clear answer about the further progress of the USD/JPY currency pair. Let’s start analyzing this tool from the weekly chart.
At the trading of the past five days, the dollar/yen pair was understood to reach 107.77, but it was not destined to stay at these heights and the trading on May 11-15 ended at the level of 107.03. As you can see, the lower border of the Ichimoku indicator cloud provided strong resistance to further northward movement. It was from it that a strong rebound occurred, which left the candle with an upper shadow that is larger than the bullish body itself.
Often after such candles, there is a reversal of the rate of decline, because such a long shadow signals the failure of further growth, that is, the weakness of the bulls. However, the bulls for USD/JPY do not give up and at the time of writing, the quote is growing. In the case of a census of past highs and a breakout of sellers’ resistance at 107.77, the next target of the players to increase will be 108.14, where the 50 simple moving average passes. A more distant reference point for possible growth will be the price area of 108.85-109.05, where the Tenkan line and the 89 exponential moving average are located.
A bearish scenario for this currency pair will be indicated by a breakout of support at 106.54, where the minimum trading values of the previous week were marked. In this case, the pair will once again test the strength of the strong and important level of 106.00, the breakdown of which will increase the probability of a downward dynamics of the instrument.
Despite the pessimistic forecasts of the head of the Federal Reserve Jerome Powell that the GDP of the United States is at risk of losing about 20-30% in the second quarter of this year, and unemployment may exceed 20%, the pair grew at yesterday’s trading. It is difficult to understand what the market participants were guided by in this case, but the fact of growth remains such.
In today’s trading, the pair continues to show a moderate rise, if it continues, the resistance level of 107.77 will retest. In addition to the fact that the highs of the previous week’s trading were shown here, the daily 50 MA is located right at this mark, which can significantly complicate the USD/JPY bulls’ plans to move the quote in the north direction. But even if the level of 107.77 is passed, the pair will have to face a strong 89 exponential at 108.00. However, the difficulties with moving the course up for players to increase will not end there. Already at 108.24, the pair is expected to have at least a strong 144 exponential moving average, which is colored orange on the chart. I believe that only a breakdown and consolidation above 144 EMA will allow us to count on further growth of the quote.
Conclusion and trading recommendations for USD/JPY:
I would like to note at once that the situation for this currency pair is far from certain. So it turns out that the traditional protective asset, which is the Japanese yen, has met serious competition from the US currency. It seems that investors cannot understand which asset to give their preference to in this crisis situation. I believe that the situation still continues to be a crisis, especially in the United States, where COVID-19 continues to affect the population of the country.
In such cases, it is reasonable to consider both options for positioning.
In my personal opinion, the highest priority is for sales, which I recommend considering near 107.70-107.80 and 108.00-108.25. At the same time, the pair’s purchases can also bring profit and be successful. I recommend that you take a closer look at the opening of long positions after short-term declines in the area of 107.30-107.00. It is likely that this week we will return to the analysis of USD/JPY and, if necessary, adjust the options for entering the market.
I wish you success!
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.