Just as it looked as though USDJPY was sleepwalking into bearish territory, it would appear the pair has found a new lease of life just in the nick of time.
Following in the footsteps of EURJPY and GBPJPY , it looked as though USDJPY was about to break below the Ichimoku cloud, taking it into bearish territory for the first time since the start of October (barring a brief dip below on 9 November).
Instead the pair could be heading higher once again having rallied off the bottom of the cloud to trade around 0.5% higher on the day and 100 pips up off the lows.
Whatever the trigger for the move – weaker GDP data from Japan overnight, weaker economic sentiment figures, stronger global risk appetite on the day – the only question that matters is whether it’s sustainable or a short term shot in the arm that precedes a break below the cloud?
The first sign that the rally may have found new life again is the break of a short term trend line – 19 January highs – although this in itself is far from a clear signal. A much stronger sign would come from a break above 115 which would see the pair move back above the cloud and take out the 15 February and 3 March peaks and end the series of lower highs in the process.
More broadly speaking, the pair has been roughly range-bound since near the start of the year, with the upper end around 115.50 and lower around 115.50. A break out of this would be a clear sign that the pair has broken out of the consolidation period.
Should this be a break higher then we could be headed back towards 118.50 – which given the fundamental backdrop may make sense – while a break below the cloud would suggest further consolidation at best or a much broader sell-off at worst. The latter still seems quite unlikely at the moment.
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