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FX Analysis

USDJPY – is the rally finally over?

The bullish run that USDJPY and other JPY currency cross-pairs have been enjoying throughout March and April saw the Japanese Yen hit a 20-year low against the U.S. Dollar at the end of April, however this rally appears to have been put on hold in May. So, where will the currency pair head next, and will there be further trend trading opportunities on the horizon?

The monthly chart of USDJPY below shows three significant horizontal levels of support/resistance (marked in pink), at around 134.50, 125.50 and 118.30.

Zooming in to more recent price action on the monthly timeframe, it can be seen that price is currently trading above the 125.50 level but has not yet reached potential resistance at the higher 134.50 level. One possible scenario could be a pullback to support at 125.50, followed by another rally up towards the next level of resistance, thus giving a technical reason to continue looking for potential long trading  opportunities. An alternative view could be a larger pullback down towards support at 118.30 before a possible return to the uptrend.

On the weekly chart below, an uptrend is established, with higher highs and higher lows in price action, and the 10, 20, 50 and 200 MAs lined up and showing good bullish geometry. The MACD and RSI indicators show bullish convergence with price, indicating the uptrend could still have some momentum behind it.

The weekly chart of the CMC USD Index shows an uptrend that is currently experiencing a pullback, and conversely the CMC JPY Index weekly chart shows a downtrend that is also experiencing a pullback. It is therefore not unexpected that the cross-pair between the two should also experience a similar retracement, and may not necessarily mean that the uptrend on USDJPY is over despite bearish price action in recent weeks.

On the daily chart below, an uptrend in price action can no longer be seen, as there are no successive higher highs and higher lows. The 10, 20, 50 and 200 MAs are lined up, but are starting to flatten, which also suggests the uptrend has entered a pullback. The MACD and RSI indicators are converging bearishly with the recent lower highs and lows in price, which could suggest the pullback has not yet finished. The 125.50 level could be a realistic area for buyers to return to the market and restore the uptrend, but confirmation may need to be seen by way of higher highs and higher lows in price action, on this or a lower timeframe, before considering any opportunities to buy, since a deeper move down towards the lower level at 118.30 could still be possible.


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