USD/JPY – 118 is the Line in the Sand

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USD/JPY - 118 is the Line in the Sand

USD/JPY has been bearish so far in 2015. However, this decline is within the context of a prevailing secular bull trend that started in 2011. Last week, USD/JPY did make a new low on the year, but found support around 116.

USD/JPY 4H Chart 1/19
usdjpy 4h chart 1/19
(click to enlarge)

Key resistance: Now, to the upside, 118 remains the barrier as it has shown to be in a support/resistance pivot area. If price can break above 118 this week, we can start considering the bullish continuation scenario.

On a pullback, price should hold above 117, in which case, the market will be more confident of the bullish outlook.

More Resistance: 119.00 might be next barrier. A clear break above 119.00 with the RSI pushing to 70 would be an even stronger more developed bullish signal. In this scenario, the 118 level should become support, and the common resistance around 120.70-120.80 will be in sight.

In this bullish scenario, let’s also look at the 120.00 level with respect as resistance. It was a support/resistance pivot area, and we can see that it is reinforced by a falling speedline in the daily chart.

GBP/JPY Daily Chart 1/19
gbpjpy daily chart 1/19
(click to enlarge)

Still Bullish: Note that the daily RSI broke below 40 briefly but is now returning above it. This shows a slight violation of the bullish momentum, but forgiving this brief violation, the bullish momentum is still in play.

Now, if price does not break above 118.00, the pressure will remain on the 116 pivot and the 115.56 December-low,.

The Bearish Scenario: A break below 115.50 will first open up the 114.00 handle where we see some support, with the 100-day SMA just under. Then below 114.00, the USD/JPY would open up the 110.00 low. These bearish outlooks are not likely unless the BoJ discusses normalizing monetary policy. Most likely, the BoJ will maintain its current stance.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.