USD/JPY Technical Analysis: Upside Risks Heightened Before BoJ (Levels)

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Talking Points:

• USD/JPY Technical Strategy: Awaiting Decision from BoJ, Charts Favor Downside


• 38.2% Fibo of Dec-Jan Range Remains Resistance Ahead of BoJ


• JPY Clearly Strongest Currency in 2016 That Should not be sold, unless BoJ Forces It

Stocks selling off after the Federal Reserve rate decision on January 27 helps to show the relief that had reliably come from the Fed may be gone for now. While this is rather supportive for the US Dollar as a whole, USD/JPY is in a unique scenario that does not favor buying the US Dollar. Instead, it is best to keep an eye on equities via the JPN225 or Japanese Nikkei or the SPX500 to get a sense for the likely direction of risk or the Bank of Japan’s intention to further expand QQE.

ST Bearish USDJPY Set-Up Developing

Because USDJPY is strongly correlated to risk sentiment, the direction of broader markets will likely determine the overall direction of USDJPY. If equities move sideways or drop through key supports, the risk remains for risk-sentiment to pull USDJPY convincingly through the longer-term head & shoulders neckline to lower levels.

The chart above shows an effective price channel in red that is drawn off key pivots in December that have done a fair job of framing price action since. We are now at an inflection point on the chart as the 38.2% Fibonacci level of the December and January price range aligns with the channel resistance. Now, ahead of the BoJ, we will see whether 117.645, the opening range low for the week, can hold the price up and if not, a breakdown in price to new channel lows targeting 115 is in focus.

With the Bank of Japan, announcing their latest decision on Monetary Policy on January 29 could erase the downside if they announce new measures of easing, which would turn attention surprisingly to new highs beyond the 2015 high of 125.85. New highs would be favored because the strong dollar would remain in focus as long as the Fed keeps a focus on higher interest rates, and a weaker Yen would be favored if the Bank of Japan increases their stimulus. If they do not, the trend lower should not be fought.

T.Y.

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