Why USD/JPY bulls should be cautious at these highs
Updated
USD/JPY has continued to defy gravity despite the growing threat of verbal (or actual) yen intervention by the MOF/BOJ. Yet the higher and faster it rises, so does the threat of intervention. You can see what impact it had on USD/JPY from the large bearish candle that formed on 23 October 2022, where the initial break above 150 was then met with a swift move lower and subsequent -16.3% decline over the next 2.5 months.
However, what has caught our eye today is that recent cycle highs have stalled around the 10 October high, the day a softer-than-expected US inflation report saw the US dollar plunge. There is also a volume node from the choppy price action in October at 147.1, and such HVNs can act as both a magnet to attract prices and also become support/resistance.
And given USD/JPY’s recent pattern of breaking key levels and cycle highs before reversing, we’re a little sceptical of bullish breakouts – especially with the growing threat of verbal/actual intervention. Furthermore, the US02Y-JP02Y spread has stalled just beneath its March high, so perhaps USD/JPY is at least due a pullback before it tries to break higher.
Either way, we’d prefer to buy dips over breakouts. And as for any potential pullback, we’d prefer to wait for a breakout to become a ‘fakeout’ (where prices move back below the initial breakout level) before shorting against the trend.
However, what has caught our eye today is that recent cycle highs have stalled around the 10 October high, the day a softer-than-expected US inflation report saw the US dollar plunge. There is also a volume node from the choppy price action in October at 147.1, and such HVNs can act as both a magnet to attract prices and also become support/resistance.
And given USD/JPY’s recent pattern of breaking key levels and cycle highs before reversing, we’re a little sceptical of bullish breakouts – especially with the growing threat of verbal/actual intervention. Furthermore, the US02Y-JP02Y spread has stalled just beneath its March high, so perhaps USD/JPY is at least due a pullback before it tries to break higher.
Either way, we’d prefer to buy dips over breakouts. And as for any potential pullback, we’d prefer to wait for a breakout to become a ‘fakeout’ (where prices move back below the initial breakout level) before shorting against the trend.
Note
A classic yen reversal following the break of two resistance levels on Tuesday. A bearish outside / engulfing day has formed on the daily chart.
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