USDJPY technicals in control

September 28, 2016

The Yen continues to find itself stuck between a rock and a hard place when it comes to trading, but seems to present itself with the odd opportunity for traders in recent days as it once again finds itself stuck on a slow bullish trend line, despite the bearish down turn. For the most part the Bank of Japan has been looking at monetary policy to help improve the current market, but with the USDJPY still sitting above the 100 mark it seems unlikely they will budge to bolster the currency. Many analysts predict that the BoJ will only act if the USDJPY drops below the 95 mark and threatens the current outlook for an increase in inflation. For many in the Bank of Japan it seems that the outlook for inflation is very optimistic with the market however feeling that's not the case hence the recent fall in the USDJPY since the start of the year. 

When looking at the USDJPY it's easy to find the trend that has been the most dominant and that is the strong triangle pattern that has formed in the recent months as the USDJPY has struggled to find any momentum below the 100 mark. Any push upwards has also been met with stiff resistance at 101.387 and the bearish trend line that has been in play now for almost a year. With all this movement so far it's looking more and more likely we will see some large swings from the USDJPY as it the bearish and bullish trend lines in play come together. I would expect to see it sink lower, as traders have a history of baiting the BoJ into taking affirmative action when devaluing the Yen when it slips too much. So that push down to the 95 level may in fact become a reality once we see the convergence of the triangle and the market look to slip lower.

Oil markets have also been swept up in the headlines as of late, as OPEC continues to try and bring something to the table to stabilize the current oil volatility around the low $40 dollar a barrel mark. It has so far asked for a production freeze in order to stabilise things, however the geopolitical situation is making very little sense, with both Libya and Iran looking unlikely to abide by such a thing. And Russia, Canada and the United States likely to keep on pumping in the near term in order to satisfy their own goals.

Any further dips lower than the current price level are likely to find stiff resistance at 43.00, which has so far been the line in the sand for the bears. Below this level and 41.46 becomes the next leg down to support, and after this we are back into volatility that leads to wild swings in the present market climate. With the USD becoming stronger coupled with OPEC's weakness to control the market it seems all the more likely that the bears may indeed get to take another bite out of oil in the short term.

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