USDJPY and EURUSD Technical Analysis

Talking Points

• USD/JPY squeezes higher after falling to new YTD low
• Covert intervention by the BOJ/MOF?

USD/JPY fell to its lowest level in almost a year and a half yesterday before finding support around a trendline/Fibonacci expansion in the 111.00 area and recovering sharply. The aggressive move prompted almost immediate talk of intervention. I do not think it is off base. The 109.17 – 112.47 daily range from October 31, 2014, remains of interest to the markets and Japanese policy makers as that was the day of the surprise QE announcement from the BOJ and when Japan effectively went all-in on “Abenomics”. I think a break of this range would be psychologically damming for the market and is something the BOJ/MOF would like to avoid and, for this reason, it is not all that surprising that the exchange rate has gotten sticky around current levels.

The big question mark in all this is the G20 meeting last month in Shanghai and what really went on. Judging from recent central bank rhetoric and the reaction of the USD since then it is not all that farfetched to think some gentleman’s agreement was struck. If that is the case, will the Japanese risk ending the détente in the global currency war by intervening aggressively? Probably not, so if the official hand is in the market it is probably going to be operating covertly unless forced otherwise. This argues choppy trading likely continues – especially on thetechnical breaks. The big tell that authorities are “giving up” would be a clear break of 109.00.

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USD/JPY
Weekly

-The head and shoulders target is still in focus near 105, which is near the January 2014 high and October 2014 low, but it could be a while before that is reached. Don’t overlook the fact that this week’s low is 110.66…or 1 pip from the 2008 high. A parallel to the 1990-1998 line, extended from the 2007 high, is also at the low (this angle was also the neckline from the 2010-2012 inverse head and shoulders that launched the rally into last summer. Generally speaking, USD/JPY could hold up for a while longer.

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EUR/USD: ranging bullish within narrow levels. The price is located to be above 200-day SMA and 200-day SMA for the primary bullish market condition with the ranging within 1.1453 resistance and 1.1304 support levels. If the price breaks 1.1453 resistance to above on close daily bar so the bullish trend will be continuing, if the price breaks 1.1304 support to below so we may see the secondary correction to be started up to 1.1063 bearish reversal level as the target.

There are the following news events which will be affected on EUR/USD price movement for the week:

• 2016-04-11 13:25 GMT | [USD - FOMC Member Dudley Speaks]
• 2016-04-12 06:00 GMT | [EUR - German CPI]
• 2016-04-12 18:00 GMT | [USD - Federal Budget Balance]
• 2016-04-13 12:30 GMT | [USD - Core Retail Sales]
• 2016-04-13 14:30 GMT | [USD - Crude Oil Inventories]
• 2016-04-14 09:00 GMT | [EUR - Core CPI]
• 2016-04-14 12:30 GMT | [USD - Core CPI]
• 2016-04-15 02:00 GMT | [CNY - GDP]
• 2016-04-15 09:00 GMT | [EUR - Trade Balance]
• 2016-04-15 12:30 GMT | [USD - Empire State Manufacturing Index]
• 2016-04-15 14:00 GMT | [USD - UoM Consumer Sentiment]

Resistance	Support
1.1453	1.1304
N/A	1.1063

USD/JPY: bearish ranging near bullish reversal. This pair is ranging bearish market condition: price is located near and below Ichimoku cloud and Senkou Span line which is the virtual border between the primary bearish and the primary bullish trend on the chart. The intra-day price is on ranging within narrow s/r levels for the ranging bullish reversal to be started or for the primary bearish trend to be continuing.

• if the price breaks 109.54 resistance so the reversal of the price movement from the primary bearish to the ranging bullish market condition will be started;
• if the price breaks 108.74 support level so the bearish trend will be continuing;
• if not so the price will be moved within the channel.

Resistance	Support
109.54	108.74
110.66	107.67

Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of 1.1337 or either trend line or 1.1400.

Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of 108.43.

Go short following a bearish price action reversal on the H1 time frame immediately upon the next touch of the bearish trend line currently sitting at around 1.1445, or 1.1477 or 1.1505.

You had better make short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of 109.27 or 109.89.

USD/JPY has moved cleanly lower from the 110.50, which aligns with a multitude of resistance that we’ll unpack later. Over the weekend events, which included the G-7 meeting and Japan’s Trade Surplus that swelled unexpectedly to the largest amount since 2010 when the JPY was in an environment of persistence strength. The economic surprise brought short-term JPY strength, but that may not be long lasting.

Many had discounted the probability of BoJ intervention ahead of the G-7 Summit last weekend that Japan hosted. However, now that the G-7 meeting is in the rearview mirror, many traders think that all bets are off, and we could see renewed vigor from the BoJ to not let JPY buyers enjoy their JPY strength for as long as they have. The other possible scenario is renewed US Dollar strength on the back of renewed belief that the Fed will hike rates, and set the Dollar off on a path of policy divergence of other currencies.


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• EUR/USD Technical Strategy: Flat
• Euro finds resistance above 1.14

The Euro reversed sharply lower against the US Dollar, producing the largest two-day losing streak in nearly four monthsafter finding resistance above the 1.14 figure. Prices have now erased over half of the advance triggered by May’s soft US jobs data.

From here, a daily close below support at 1.1217, the 38.2% Fibonacci expansion, opens the door for a test of the 1.1145-56 area marked by a rising trend line set from December 2015 and the 50% level. Alternatively, a reversal above the 23.6% Fib at 1.1293 paves the way for a test of the 14.6% expansion at 1.1340.

An actionable trade setup appears to be absent at this time. On one hand, prices are too close to support to justify entering short from a risk/reward perspective. On the other, the absence of a discrete bullish reversal signal suggests taking up the long side is premature. Waiting on the sidelines appears to be prudent.

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