USD/JPY Technicals – Kumo helping price to stay afloat

Price was looking optimistic earlier this week, with bulls able to push higher using last Friday’s close as a launch pad. However, price has ultimately failed to break 99.5 interim resistance, and instead fell back significantly following the slide in Nikkei 225 futures. Price has since stabilized, finding support around 99.0, but nonetheless bulls are trapped below the recent short-term support/resistance around 99.15.

Hourly Chart

Generally USD/JPY tend to move Nikkei, not the other way round. However given current extraordinary circumstances, where both USD/JPY and Nikkei 225 are products of strong speculation, it is not surprising to see one asset influencing speculative behaviors on the other. With that in mind, looking at N225 Futures right now (as the underlying stock market is closed), price has recovered and is on track to push to newer highs once again, suggesting that USD/JPY could equally be well supported by speculators moving forward.

From a technical perspective, price is also being supported by current Kumo, and it will require strong risk aversion in order for price to break 99.0 and counter the buoyancy of current Kumo to reach lower levels. Even in such an event, a bearish breakout of the Kumo may simply end up hitting 98.5 interim support (seen on Daily Chart below) and find further resistances around 98.0. Bulls on the other hand may be able to ride the rising Senkou Span A back to the consolidation zone between 99.15 and 99.45. Stochastic readings are in support for a move higher from here, with readings pointing up and a divergence between Stoch/Signal line hinting to widen further now. However, readings have not reached so low in recent days, and hence it remains to be seen if the recent trough formed can be reliably trusted.

Daily Chart

Yesterday we mentioned the possibility of a Triple Top now that the double top has been invalidated. Should current price move lower from here, especially if a long bearish candle is formed today, a Triple Top pattern (or Head And Shoulder pattern) may be confirmed with the Evening Star bearish reversal forming as the third top/right shoulder, making a move back towards 96.8 more likely. Stochastic readings currently is on the way to form a peak with Stoch and signal line both zeroing on each other, increasing the case for a third top to be formed.

With that being said, the allure of hitting 100.0 may still result in bulls holding steadfastly against any temporary sell-offs. Without strong risk aversion, it is hard to see bulls giving up the chance to hit 100.0 after getting so close previously. Hence, for the formation of Triple Top, we should ideally see a meltdown in global confidence, which is admittedly in short supply given continuous new highs forged by S&P 500 and Dow Jones Industrial Average.

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