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Japanese Yen Technical Analysis: USD/JPY False Break, or is Momentum Still There?

Japanese Yen, USD/JPY – Talking Points

  • USD/JPY made a new peak as USD gained traction across the board
  • Bollinger Bands and a candlestick might indicate exhausted price action
  • Momentum signals remain on the radar. Where to next for USD/JPY?

USD/JPY – Technical Analysis

USD/JPY made a 3½-year high when it took out the November 2017 peak this week.

Having made the high at 114.971, it then promptly made a Bearish Engulfing candlestick.

The pattern involves two candles with the second one completely engulfing the ‘body’ of the previous green candle.This occurs when the open is at, or above the close of the previous day and the close is below the open of the previous day. This was observed after the close on Wednesday.

On Tuesday, the price closed above the upper band of the 21-day simple moving average (SMA) based Bollinger Band. The following day it closed back inside the band. This could suggest that bearishness might unfold.

To counter the possible reversal technical indicators, momentum could remain bullish.

A bullish triple moving average (TMA) formation requires the price to be above the short term simple moving average (SMA), the latter to be above the medium term SMA and the medium term SMA to be above the long term SMA. All SMAs also need to have a positive gradient.

Looking at where the price is and the arrangement of the 10, 55 and 200-day SMAs, all of these conditions have been met. A caveat to this bullish TMA is location of the 21-day SMA.

Although not in this TMA study, it none the less is an SMA of significance and currently has a flat gradient. The 10-day is also very slightly below it, but a move higher today or tomorrow might see it cross above the 21-day SMA. Such a move may see the gradient of the 21-day SMA turn positive.

It should be noted though that past performance is not indicative of future results.

Resistance could be at the pivot points of 114.450, 114.701 and 114.735 or the recent high of 114.971. On the downside, the 10 and 21-day SMAs are possible support levels before the previous lows of 113.762 and 112.727.

USD/JPY CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter