USD/JPY – Could We Be In For New Lows ?

Beginning on the monthly, we have a descending channel dating back to January 2017. As of February, we retested this descending trendline and again this month, leaving two wick rejections into the highs. Taking a look at the prior candle closures, we can see a slowdown and rejections into the highs, with Doji candlestick formations.

Let’s drop down to the weekly to get a clearer picture of price action.
On the weekly, the descending channel is more evident. We made a new lower low on the 9th of March with huge momentum seen as the FED Reserve Bank cut rates and quantitative easing measures were being exercised. We saw a pump into the upside where price then bumped its head on 111.500 as a psychological level.

Jumping down to the daily timeframe, we can see the majority of late February losses were made up, however, we began seeing resistance as soon as we crossed 111.200
If we plot a rectangle from the gap seen on the 24th February and extend it into the future, we can see multiple wick rejections into this level signaling buying pressure is weakening and bears are looking to take hold of the market.
The two dojiś formed beside each other signaled the reversal was near and we can drop down to the 4-hour timeframe to refine this viewpoint.

On the 4 HR we can see that 111.500 held firmly as a resistance level, over a five day period we saw 9 rejections off this level.
So once we established 111.500 as a resistance level and we had seen a slow down on the daily, we could look for reversal patterns on the 4HR. Coming into the US session, we saw a 3 pin pattern formation, which we could use as an execution point on the close. However, at AspireFX, we tend to refine our entry to the lower timeframes to catch high risk: reward trades. Drawing an ascending trendline we could also use the trend line break and retest as an entry.

1 HOUR EXECUTION EXAMPLE :

At the current time of writing this article, market price is at 108.000, the daily candle is rather indecisive and shows slowdown after a viscous bearish movement, seeing the dollar fall 350 pips on Thursday and Friday.

On a 4HR timeframe, we can see 107.500 held firm as a support level and we have seen a push, off that region with price closing above 108.000.
USDJPY may need relief before it´s next move so if the daily closes above 108.000, we could see a push back into 109.500 – 110.000 however, following in line with the current trend, if we close below 108.000 and find resistance, price will look to head into 106.000.

Taking note of fundamentals for the week we have Trump speaking tonight as well as CB consumer confidence tomorrow at 4:00 pm GMT+2. Wednesday we have non-farm employment change and manufacturing data to keep a look out for. Thursday we see unemployment claims and we then have the daunting NFP on Friday!

With all of these data points to look out for, the coronavirus pandemic and a huge stimulus package of $2 trillion, quantitative easing has been forced on the Fed. Can the Dollar recover or will we see major Dollar weakness ahead?

As always traders, keep risk management in line with your trading plan and for more updates, subscribe to our blog.

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