Global financial markets are getting ready for probably the most crucial fundamental event for the rest of the year – the FOMC meeting, rate decision, economic statement and Powell’s press conference. The event falls on September 18th so take note. While global equities have kept rallying, safe-haven assets bounce off local tops, the U.S. dollar index interestingly was trading with a mixed bias this past week. The greenback softened versus the Euro, British Pound, Australian dollar and emerging markets currencies led by the Chinese Yuan. USD gained strength however versus Swiss Franc, Japanese yen, Canadian and New Zealand Dollars. Among dozens of charts I analyse every week, the chart below impressed me the most. The U.S. 10-year Treasury yields soared 21.49% this past week, adding 336 basis points. Taking fundamental explanations out of the equation as opinions on Powell’s rhetoric were split, I will focus on the technical analysis for the currency pair which will be directly impacted by the interest rate differentials – USD/JPY.
After testing the support range of 104.45/81 for the third time since November 2016, USD/JPY charted three green weekly candlesticks in a row, closing the last week above the round-figure psychological resistance level of 108.00 yen per dollar. That impressive rally of more than 350 pips in three weeks could change the long-term technical outlook, reversing the recent downtrend. However, sound technical analysis shows several essential resistance levels which must be breached before forming such a conclusion. The Ichimoku Cloud trend indicator is still bearish on the weekly chart below as the leading span has a negative surplus and all three lines, together with the current rate, are placed below the cloud. In that context, the latest bullish rally is nothing but a retracement with the nearest resistance at 108.427 (Ichimoku Base Line, the brown curve on the chart). If the weekly close rate will remain below that resistance, the selling pressure will continue. Otherwise, after breaching the Base Line, the bulls will eye the next target – the bottom of the Cloud currently coming at 109.703. The upcoming week promises extremely high volatility thus whipsaws are possible in both directions. From a conservative point of view, it would be attractive to short USD/JPY on a failed test of the Base Line resistance but such a scenario suggests quite a deep stop-loss order due to potentially long shadow on the upper side of the next week’s candlestick. Therefore, It would be safer to wait-and-see before pulling the trigger.
Looking at the same weekly timeframe with other technical indicators below, I have more doubts about the bullish scenario. USD/JPY breached the 21-week exponential moving average, the ADX main line is above the threshold pointing to a strong bullish momentum and confirmed by the positive surplus between the -DI and +DI lines. However, fast RSI (13 weeks) is still below 50%, indicating that the bulls have to show more power before reversing the long-term downtrend. Nearest resistances are coming at 108.67 (EMA34) and 109.31 (EMA55).
The Daily chart below looks much more bullish though. USD/JPY breached the resistance trendline (green), Parabolic SAR dots jumped below the price, and both MACD and Stochastic RSI point to strong bullish momentum. If the pair closed a day above the recent top at 108.856, the sequence of lower highs would be busted, promising more action North. Until then, USD/JPY might be vulnerable to selling pressure and a sudden bearish reversal. Tread carefully but take note of the opportunity! Best wishes in the markets this week traders!