USD/JPY Technicals – Facing resistance below 100.0

Prices rallied strongly on Friday as various G20 leaders came out to lend support to BOJ’s cause. There was no condemnation of Japan for its strong policy moves which has led to Yen weakening by more than 20% since November ’12. Speculators treated it as a sign that BOJ will be able to implement more and more stimulus as it deem fit, pushing USD/JPY above the 98.5 ceiling towards 99.0.

Hourly Chart

Price subsequently break the 99.5 level which is the confluence with the Rising Channel top, and pushed up higher further this morning. However, sell-orders are aplenty just below the 100.0 mark, and bullish pressure began to pewter out before price could even reach the previous swing high of 99.946. Current pullback is supported by the rising Channel Top, which will allow price to re-test the swing high and subsequently 100.0 as long as Channel Top stay intact.

Stochastic readings suggest hat a bear cycle is underway, however even in the event of a bear cycle which price does manage to breach into the Channel, we could still see support along 99.5 and also between 99.0 – 99.3 which was the consolidation zone found on Friday. If 99.0 is breached, a move towards Channel bottom may be possible, but price may again find support alone 98.5, and subsequently between 97.5 – 98.0 which makes it hard for bears to make any significant headway. Bulls on the other hand only have 100.0 as resistance. Price is likely to accelerate higher after the 100.0 level has been breached convincingly.

Daily Chart

Bullishness is clear on the daily chart, however if price fails to break 100.0 and push for a bullish breakout, the possibility of a double top pattern forming increases. This double top may be confirmed by a break of 96.6 support, but preferably a move below 92.0 is preferred as confirmation which will negate the current bull trend and opens up 80+ levels for bearish objectives. Stochastic readings are still heading higher despite entering deep into the Overbought region. However it is important to note that counter-trend stoch signals tend to be unreliable during strong trends. A bear cycle signal my emerge especially if price fails to breach 100.0, but that may not be useful as interim troughs can be formed and we may see price not forging lower lows before a bull cycle re-emerges once more.

From a market sentiment point of view, as long as the possibility of more BOJ stimulus is open, speculators will be willing to buying into USD/JPY. In fact, the 100.0 is a myth unto itself, and it will not be surprising to see bulls wanting to push towards the hallowed level. The issue is how bulls will react AFTER price hit 100.0. A bullish breakout is likely if we consider that current uptrend is still in play, however if bulls are satisfied with hitting the 100.0 milestone, we could see sell-offs happening fast and furious as bull traders close out their running positions at a profit.

OANDA Open Orders tell us that a large proportion of sell orders exists around 100.0. Is this a sign that a reversal may happen when price hit 100.0 ala WTI Crude circa 2007? The answer is certainly not clear, as a huge stack of sell orders existed between 94 – 97 but that didn’t stop price from breaking it like a hot knife through the red butter. However it is also worth noting that there was a huge fundamental driver – BOJ stimulus announcement that allowed bulls to push on. Without any more fundamental driver, will price be able to break the thinner red barrier? We’ll find out soon enough.

More Links:
Nikkei 225 Futures – Land of the Rising Price as new Highs reached
Gold Technicals – COT shows more bulls as price rebounds
Week in FX Asia – Yen Continues Fall as G20 Issues no Objection to Japan

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