Japanese yen may have range trade opportunities as momentum stalls
USD/JPY remains range-bound after a move lower lacked follow through; JPY direction might be hostage to broader moves in the US dollar and yen weakening has paused.
USD/JPY spent last week straddling the late April low of 127.03. When it initially moved below that level, the price exhibited very little follow through, making a low of 126.36. This could indicate a lack of conviction to press lower and support might be at that low. Further down, the break points at 125.10 and 125.28 may provide the next support zone. The March low of 121.32 could also be a support level to watch.
The consequent sideways price action appears to confirm that the range trading environment remains intact for now. Prior to this set-up, USD/JPY had been in an ascending trend channel. The 19th April was the day that JPY was at its historical lowest ebb against the CNY. When that CNH/JPY peak was made, China started to devalue CNY via USD/CNY and consequently, JPY stopped weakening more broadly.
The period since 19th April has seen the 5-, 10-, and 21-day simple moving averages (SMA) move above the price and turn from positive to negative gradients. This rolling over of the short-term SMAs potentially indicates near-term bearish momentum. Offsetting this, the medium- and long-term SMAs, represented by the 55- and 200-day SMAs, remain below the price with positive gradients, illustrating possible bullish cues over a somewhat longer time horizon.
This clash of momentum signals further supports the possibility that a range-trading setup may persist. If the price breaks above the short term SMAs or below the 55-day SMA, momentum could gather in that direction. On the topside, the recent highs of 131.26 and 131.35 could offer an area of resistance. A break above those 20-year peaks may see a possible test of the resistance zone at the January and February 2002 highs of 135.01 – 135.16.
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Daniel McCarthy | Strategist
30 May 2022
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