USD/JPY Price Outlook: Yen Reversal Faces Initial Resistance Hurdles

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The Japanese Yen has been under considerable pressure over the past few days after price (USD/JPY) responded to a key support confluence. Here are the updated targets and invalidation levels that matter on the USD/JPY charts heading into Jackson Hole this weekend. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

USD/JPY Daily Price Chart

Technical Outlook: In my latest Analyst Pick on USD/JPY, we noted that our focus was, “on a drive in to a critical support confluence at, 109.80/91 where the 100 & 200-day moving averages converge on the 38.2% retracement of the March advance and pitchfork support. Look for a reaction there.” Price registered a low at 109.78 early in the week before reversing sharply with the advance now targeting initial resistance hurdles which IF cleared, fuel further upside in price. A daily close above 111.40/48 would be needed to suggest a more Signiant low is in place with such a scenario targeting the monthly open at 111.87.

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USD/JPY 240min Price Chart

Notes: A closer look at USD/JPY price action further highlight this week’s reversal off key support at 109.91 with breach above August trendline resistance shifting the near-term focus higher in price. Immediate resistance targets are eyed at 111.26 backed by 111.40 where the May high converges on the 50-line – looking for near-term exhaustion off one of these levels. Interim support rests at 1110.79 with bullish invalidation at the weekly open at 110.59– a break below this level would once again look for a challenge of slope support.

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Bottom line: The reversal in price off confluence support this week risks further upside but the immediate advance looks vulnerable near-term heading into 111.48. From a trading standpoint, looking for near-term exhaustion into these upcoming resistance targets with a pullback likely to offer long-entries above 110.59 for a final stretch higher in the days.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

USD/JPY Trader Sentiment

A summary of IG Client Sentiment shows traders are net-long USD/JPY – the ratio stands at +1.09 (52.1% of traders are long) – weak bearishreading
Traders have remained net-long since July 23rd; price has moved 1.1% lower since then
The percentage of traders net-long is now its lowest since July 19th
Long positions are11.4% lower than yesterday and 15.5% lower from last week
Short positions are 5.7% lower than yesterday and 5.9% higher from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.