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Quo Vadis USD/JPY?

Is the Trans-Pacific Partnership (TPP) really dead, or is the US withdrawal from the trade agreement an opportunity for other key Pacific nations - in particular Japan - to assert themselves? The TPP, signed in February last year, took more than a decade to negotiate. Japan had already ratified the agreement and was eager to see it put into action. That was all thrown up in the air when the 45th president of the US this week exercised his executive authority to withdraw from the agreement.  However, while the US was the biggest economic power in the TPP, that still leaves 11 other Asia Pacific countries free to potentially negotiate a better treaty, without feeling too constrained by considerations of the big guy. And that may be an opportunity to set the stage for extended prosperity in the region.  

Taking these current political factors into account, it makes sense to see where USD/JPY is trading right now and identify the key levels in that forex pair. Successful racing car drivers learn the twists and turns of the race track by walking the route. Just as they plan their lap, we traders want to plan our trades, wait patiently for the opportunity, and then flawlessly execute in the markets.

On the monthly chart of USD/JPY, we can easily identify some key levels the market has reacted to in the past and therefore may be likely do so again. The elephant in the room is the 100.0 level: a big round number with serious psychological implications, which will be on the list of almost any serious trader. The uptrend from 2012 to 2015 has clearly been broken and it looks like the market is currently establishing a lower high below the level of 115.45. So looking at the monthly chart, a push lower to retest the level of 104.5 and ultimately 100.0 seems to us to be a likely possibility. Some key factors are missing in order for us to make a full bearish assessment. For example, we have yet to see that perfect fanning pattern in our moving averages, for which the pullback in 2016 after the test of 100.0 was a little bit too deep. But should the price establish a higher low, the most likely next target could be the 123.75 level.

Once we drill down to the weekly chart, the picture changes. The deep pullback from the monthly chart has now turned into a fresh uptrend, which is currently giving us a small bullish candle in the buy zone. However, this potentially bullish setup of the weekly chart is  not confirmed by the more bearish assessment of the monthly chart.

The daily chart again shows a fairly bearish picture: a clear downtrend with lower lows and lower highs, with confirmation from clear convergence on both MACD and RSI for this downtrend. The moving averages haven’t fallen into line yet. However, there are indications that this might happen soon

From the above analysis, it would appear the market may be agreeing that TPP without the USA could be more of an opportunity than a risk – at least for the Japanese Yen, which would explain the pressure on the USD.

One game plan for this market right now could be to focus on the lower timeframe, presenting potential Trendflow opportunities for bearish setups. Those setups would be supported by overall pressure on the USD being visible on the daily and monthly charts.

This is just one way to read the charts. But with those levels showing up, we at least have a sense of the key turns on the racetrack and can react properly whether the USD or the JPY takes the lead. 

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