USD/JPY Analysis:
- USD/JPY[1] dropping towards a major level of support as the USD[2] sell-off continues
- Volatility expected to increase over the next week as both countries are set to release Q2 GDP data
- IG Client Sentiment[3] data showing a mixed reading as the majority of USD/JPY[4] traders remain net long despite increased short positions in the last 24 hours
USD/JPY Approaches Major Level of Support
The recent decline in the dollar (often viewed via the US Dollar Index[5]) has gained momentum in light of negative real yields (nominal interest rate minus inflation) – the byproduct of the expansionary monetary policy[6] currently under way.
Current price action is framed within the larger picture where there appears to be a descending triangle[7], although the criteria isn’t fully met given the inconsistency around support (horizontal blue line).
Looking at the monthly chart, continued dollar depreciation has sent price action towards a key level of support[8] that has witnessed push backs in previous attempts to break lower bar one. Should price break below support, it would bring the next zone of resistance into play at roughly 101.50 – 100.50.
USD/JPY[9] Monthly Chart: The Big Picture
Chart prepared by Richard Snow[10], IG
USD/JPY Strategy Going Forward:
Taking a closer look at the daily chart, there has been three successive lower highs in the lead up to the break of support at 106.00 which gained momentum as price looks to have the next level of support at 104.50 in sight.
Traders that are bearish USD/JPY will surely pay close attention to support (blue line) with much interest as a break of this level opens
