USDJPY and EURUSD Technical Analysis

Last week, EURUSD started out on a strong note by briefly pushing through the 2010 low at 11876 on two different days, but each day it was unable to sustain above. Leading into the U.S. jobs report on Friday the euro was putting in a rising wedge on the 4-hr timeframe which provided a warning that we could soon see a downdraft if the underside of the pattern was broken. The all-around solid jobs report gave the US dollar a shot in the arm across the board.

Not only was the bearish rising wedge triggered, but for the first time since June we saw a lower-low develop on the 4-hr. This puts us on alert for a bearish sequence to begin developing marked by a failure to rally and develop a lower high and then subsequent lower lows. The first area to look for the euro to struggle is roughly where it closed the week near the vicinity of 11775/800, and even if it can rise above this first level of resistance if the trend is to turn lower it shouldn’t be able to gain traction above 11850.

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Based on a current one-week implied volatility level of 8.63% the expected one-standard deviation range for the next week is 10844-11106. Looking lower, if Friday’s low fails the next area of support arrives at the April lows at 10813, with a closing worst at that time of 10843. The projected low of 10844 is in nearly precise alignment. Watch for support to hold should another dive lower take shape.

Looking higher USDJPY still has work to do to break the downtrend dating back to the 7/11 high. Should it find continued buying pressure a rebound unfolding towards the projected high of 11106 could stall. There lies resistance in the vicinity from a swing-high this month which lost momentum around prior support going back to the third week of June. This may be an area where sellers step in and keep USDJPY from furthering any attempt to rally in the near-term.

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The Euro has managed to find interim support below the 1.17 figure against the US Dollar but the break of near-term trend support still hints at a downside bias. Prices turned lower as expected after hitting the highest level since January 2015 in the wake of July’s decidedly upbeat US employment statistics.

A daily close below the August 9 low at 1.1688 opens the door for a challenge of the 38.2% Fibonacci retracement at 1.1608. Alternatively, a push above the 1.1875-1.1910 area marked by the 23.6% Fib expansion and the August 2 high paves the way for a test of the 38.2% threshold at 1.1990.

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At first glance, the Japanese Yen is having things very much all its own way against the US Dollar.
USD/JPY remains in an obvious downtrend from the last significant peak – July 11’s 114.06. On a daily closing basis, that peak was itself lower than the previous notable top, May 10’s 114.30. Another bad sign for any remaining bulls. Moreover, recent falls are only an acceleration of the more gradual downtrend that’s been with us all year.

However, for the short term it might be a good idea to keep an eye on the June 14 intraday low at 108.80. That’s just about where the latest foray lower bounced between August 11 and August 14. It seems to be the most significant obvious barrier to progress lower now. It’s easy enough to see why this might be so. 108.80 is the lowest point for the currency pair short of the outright 2017 nadir of 108.11, hit on April 17. If you are uncomitted at this point it might be a good idea to wait and see if these two key support levels survive this latest attack before taking a position.

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Last week, trading in EURUSD was dominated by choppy back-n-forth price action. On three different days the euro traded below the prior week’s low of 11689, and each time it rejected lower prices and closed the session with a bounce. Overall, since topping out around the 2010 low near 11900 the euro has been constructively working off overbought conditions. This is viewed as a positive for the intermediate-term outlook, but still holds a bearish tilt in the very short-term.

While the current configuration could be considered a valid ‘bull-flag’, some more chop within the confines of the descending channel (‘bull-flag’) will do some good in terms of building a stronger, more mature pattern. A drop to the April trend-line and lower parallel near the 2016 high of 11616 would make for a good final test of confluent support within the bullish sequence. In the event we see a breakout above the upper parallel, focus will quickly shift towards 11910 and a higher high towards the 2012 low at 12041, and possibly higher.

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EURUSD: Retail trader data shows 24.0% of traders are net-long with the ratio of traders short to long at 3.17 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07646; price has moved 9.7% higher since then. The percentage of traders net-long is now its lowest since Aug 02 when EURUSD traded near 1.18508. The number of traders net-long is 9.1% lower than yesterday and 20.8% lower from last week, while the number of traders net-short is 19.2% higher than yesterday and 14.6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bullish contrarian trading bias.

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USD/JPY is within 1X ATR(5) (82 pips) of a new 2017 low. Much of that has to do, of course, with the weak USD, but what appears too important to ignore is that traders are not comfortable selling JPY, at least not across the board that tends to go with times of blatant risk-seeking behavior.

The technical picture of the USD/JPY cross is rather simple. If we see a price break and close below 108.13, all hands will be on deck to see if imminent JPY strength is back and if it can take USD/JPY lower to 107.50 followed by 105.30, the two key support zones in view. If USD/JPY breaks above the recent resistance of 110.37 (Aug. 17 high), we may be seeing a reversal to the top of the long-term range in the 114 zone.

USDJPY: Retail trader data shows 70.1% of traders are net-long with the ratio of traders long to short at 2.34 to 1. In fact, traders have remained net-long since Jul 18 when USDJPY traded near 113.359; theprice has moved 3.8% lower since then. The number of traders net-long is 4.9% higher than yesterday and 19.7% higher from last week, while the number of traders net-short is 3.5% higher than yesterday and 11.7% higher from last week.

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The Euro posted the largest daily gain in two months against the US Dollar, clearing the swing high set in early August and hinting the rising trend launched in mid-April is resuming. The move higher follows the currency pair’s completion of a bullish Flag chart pattern, as expected.

From here, a daily close above the 38.2% Fibonacci expansion at 1.1964 opens the door for a challenge of the 50% level at 1.2057. Alternatively, a reversal back below the 23.6% Fib at 1.1848 paves the way for a retest of the August 17 swing low at 1.1662.

Current positioning does not seem to offer an actionable trade setup. Prices are too close to immediate resistance to justify getting long from a risk/perspective whereas the absence of a defined bearish reversal warns that taking up the short side is premature. On balance, staying flat seems most prudent for now.

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The question is, when does a lower high break higher and thus signal a changing of a trend from lower to higher? USD/JPY is at a potential breaking point such that if the downtrend remains, here is a great place for the market to turn. Highly correlated markets like the US Treasury 10Yr Yields (overlaid as a line on the chart below) are also at a seeming turning point.

The key point on the chart of USD/JPY is that the price pattern is that of a wedge. Wedges tend to indicate big moves on the horizon. However, the direction of the move is less certain. A similar wedge pattern is developing in UST 10Yr Yields. The direction of the wedge is lower since the double top in yields from late 2016, early 2017 at the 2.62 level.

From a fundamental perspective, the markets await FOMC, which is unlikely to surprise in a hawkish given uneven data prints in the US. A more dovish than anticipated Fed would motivate the broader USD selling trend and likely send USD/JPY lower. In Japan, the focal events are the BoJ and the Lower House election, which is not expected to directly affect the JPY due to the recent subdued JPY price volatility.

The most Bullish development would be a daily close above the Ichimoku Cloud (ceiling is at yesterday’s close), and the 200-DMA (aligning with the 2017 trendline). The zone of this resistance is 111.60-112.20. This 60 pip zone could act as strong resistance. A break above this zone would favor a move to the 2017 resistance point of 114/5. A failure to breakout from here could usher in a wave of treasury buying (lower yields), and JPY strength. This bearish development would be best confirmed on the move back below 110 on a daily close basis.


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The reaction to the FOMC meeting on Wednesday may dictate which way the euro heads for the foreseeable future.” That was indeed the case for the week in terms of ‘tug-of-war’ as both top and bottom-side levels proved even further to be formidable to both sides of the market. The reaction to a directly hawkish Fed came just as the euro had been edging higher along the underside of a trend-line on the 4-hr chart. The sharp move lower quickly found support on the April trend-line where a bounce ensued on the two days to conclude the week where the euro ended up closing unchanged Friday.

Something has to give at this point – either a strong breakout to the top-side or a clean slice through the April trend-line. Then we can likely expect momentum to pick up. It won’t be long before top and bottom-side thresholds intersect, and with a few more sessions of the same ole back-and-forth trading that will be the case. A ‘head-and-shoulders’ (H&S) formation is still in the works with the lower close on Friday. If we continue to jostle around it would be a welcomed event as pressure would be pent up into a wedge formation, leading to a potentially explosive move. The trend suggests a break higher, but with these type of funneling situations it is wise to wait for a break. A breakout above the 9/8 swing-high at 12092 will bring into focus the June 2010 monthly closing print at 12236, while an April trend-line break will quickly find 11825 to contend with (H&S neckline, a break below will confirm pattern), but not likely hold given the growing importance of the trend-line. On the downside in the event of a break, the area between 11700/11600 will come into focus as support.

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