Technical analysis of USDJPY

The dollar has made some losses so far this week in some of its pairs including against the yen. Click on the image to magnify. Greater fear in markets of a second wave of covid-19 or otherwise a resurgence in the number of cases in advanced economies has led to demand for havens including JPY. Relatively higher volatility among shares has also played a role in the yen’s recent strength. Today’s technical analysis of USDJPY takes a look at some of the important areas on the four-hour chart.

High resistance here appears to be the recent high around ¥107.62. This area was tested unsuccessfully several times in the last fortnight. Low support could be around the tail of the latest large down candle somewhere near ¥106.20.

Technical indicators on USDJPY H4

Moving averages continue to print a fairly strong sell signal, with price below all of the 50, 100 and 200 SMAs. The 100 SMA slightly above the top of this chart might death cross the 200 later in the week. The first important resistance from moving averages is the 50 SMA from Bands around ¥107. If a test of this is successful, the next area would be ¥107.62, which coincides with the 200 SMA.

Price has now emerged from oversold based on both Bollinger Bands (50, 0, 2) and the slow stochastic (15, 5, 5). The latter at 38 is now closer to neutral than oversold. Volumes meanwhile suggests ongoing gains given the large uptick in buying volume during last night GMT’s losses. ‘Buying the dips’ tentatively indicates positive sentiment in the medium term.

Price action

Recent price action seems to suggest relatively higher volatility. The large down candle is important for its long tail which occurred despite no oversold signal from the stochastic. Subsequent indecision and reluctance to push back below ¥106.37 might signal a bounce over the next few periods. Traders might look for three soldiers to confirm this; however, the completion of both the current and the next period should be awaited before action on that basis.

Fundamental events

Sentiment on the yen has been somewhat this week. Most Asian indices made strong gains this morning, with some including the Shanghai Composite reaching four-month highs. The BoJ expanded its lending packages while otherwise leaving policy unchanged at June’s meeting.

The potential new wave of covid-19 is probably being played up in the media, for now at least. Even if there’s a significant general increase in cases, more lockdowns in advanced economies aren’t likely given the public’s loss of patience in many of these. The fact that indices have generally made gains this week or at least held familiar areas should mean that dollar-yen has room to go higher based on fundamentals.

Crucially, though, the USA’s final first quarter GDP growth will be announced tomorrow at 12.30 GMT. The expectation at the time of writing is for a decline of 5%, the same as the second estimate. A significant deviation from this figure in the final release would probably result in volatility for USDJPY in the short term at least.