Author: Bogdan I. Ghica, participant of the Analyst Contest
Since Mid of February the Japanese Yen has been working hard to break the US Dollar, but it is losing strength on an hourly basis, lingering between a resistance at around 114.50 and a support which has not been reached in a while at 111.50.
4 Hour Chart
On the 4HR Chart, even though there is a Bullish sentiment, it may not have the strength to change the trend from Daily, for the simple fact that there is still a long way to go until the Bulls regain control. With this in mind, once the support at 113.40 is broken the down trend will continue with less to no effort.
Having another support level at 112.25 may be encouraging for some Bullish traders but if this price target will be reached in the near future, the Japanese Yen will yet again control the chart. Even if the fundamentals will help in the short term, the overall trend remains focused on the “SHORT” side.
Considering the higher highs and lower lows, one may think that everything is going as planned, but it is not really typical for the Japanese Yen to linger around an area for too much time, and the general pressure on the price is indeed to “hammer” it.
With the final support level at 111.50, tested but not broken on the 24th of February, right now everything points out that the US Dollar may become a problem for the Japanese Yen in the short term.
On the Daily Chart things seem much simpler. We have a clear SELL trend, with the price consolidating around 113.00 for the last two weeks, even though for almost the entire February we saw a huge drop. This lingering will not hold for long, and there is only one way to go as per the trend continuation: full out BEARISH.
The 111.50 support line has not been seen since October 2014, when the price broke it with ease. This may not happen in 2016, and some fighting may occur between the BULLS and the BEARS around this price level even though it will not hold for long.
With a resistance holding at around 114.00 there is still enough room for the Japanese Yen to grow, and a third try on 111.50 should be enough for us to see higher lows and lower highs once more.
For the trend to be considered BULLISH on the Daily Chart, the USDJPY must break above 116.30 in April. If done sooner, it only sets the price in an indecision area where it is difficult to make proper trend estimations, with higher chances for it to fall back into SHORTING the US Dollar.
When price shall break 111.50, the only strong support level visible right now is found at 110.00. It may seem far away, but 122.00 is much further than the present value.
Here things go from curious to pretty interesting. For the first time since December 2012, we have a Bearish trend in effect. If price will not break the resistance at 115.50, there are high chances for it to go as low as 108.00 in March and by mid year reach even 104.00.
For some this may seem a very pessimistic view for the US Dollar, but one thing must be considered. What goes up must eventually get back down. And the way things are going right now, the Japanese Yen is “on fire”.
Almost all technical indicators point out to the fact that there is not enough strength for the Bulls to get back on top, and with strong Bearish trend lines this opinion may turn into fact. The US Dollar had its run for the past couple of years. Now it is time for the “underdog” to regain lost space on the charts.
The Gopher has so much potential that support levels are pretty difficult to detect. The resistance levels are very rarely tested, so until the price will try to hold around, testing a resistance for at least 2 times, the only way is to use the “elevator” back down.
Where to now?
The only timid “BUY” encouragement comes from the 4HR chart. On Daily and Weekly Charts we see a clearly Bearish trend and if things do not change in a couple of weeks, with the momentum at its side, the Japanese Yen may become even stronger just out of inertia.
A couple of years ago many traders thought that price will not get any higher, and the US Dollar is just fooling around. Well, Mister “Time” sure has repeated “himself” but not in the exact same way.
The Foreign Exchange Market has a repetitive structure that must be considered every time historical levels tend to be reached. Without it, there will be no “FX Market”. Considering the before mentioned detail, the USDJPY currency pair is indeed closing the gap towards such historic levels.
Those two 45 degree trend lines, found on the Weekly Gopher Chart will surely have the strength to keep the price in the aforementioned down trend. There will surely be a number of spikes at some point in the near future, but overall, unless things will change very soon, very fast, there is no end in sight to this Bearish trend.
Can it be a false breakout?
Considering the fact that the Japanese Yen tried to turn Bullish in mid-2014 with absolutely no success, generally speaking, the second time things got serious. Based on the present international aspects, and the way the US Dollar is losing strength on one currency pair after the other, a false breakout cannot be taken into consideration.
The worst thing that may happen is to see a price consolidation around a certain support level, which is not visible right now on the Weekly Chart, but we will definitely see by the end of March.
With all this being said, the Japanese Yen is surely becoming stronger on a Daily basis, and this may go on for the rest of the first half of 2016!