TA of the Day: USD/JPY Chills Out And Consolidates But For How Long?

the Japanese Yen The pound fell against the US dollar on Monday, after a strong run last week.

Markets, especially Japanese ones, were rocked last week by the end of the once-popular yen carry trade, which involves borrowing yen at a low cost to buy other currencies and assets that offer higher returns.

The aggressive selling of USD/JPY between July 3 and August 5, sparked by the Japanese Ministry of Finance interventions, the unexpected interest rate hike by the Bank of Japan, and then the unwinding of yen-funded carry trades, caused it to fall by more than 2,000 basis points! 😲

The Bank of Japan’s deputy governor tried to calm markets by signaling a pause in interest rate hikes, but confusion persisted due to mixed messages from the central bank.

This situation highlights the challenges the Bank of Japan faces in balancing market stability and long-term monetary policy objectives, especially in light of pressures from domestic policy (to raise interest rates) and global financial conditions.

The Japanese Yen is Still The currency to watch for more drama in the market.

If it rises to around 150, market participants will breathe a sigh of relief as the risks of further decline in the yen trade decrease.

But if the yen falls (and strengthens) to 142, it could lead to renewed violent price volatility. Stay tuned!

What do the technicians say?

Welcome to Teaching Assistant of the Day (TAOTD)! 👋

Let’s focus on the current technical setup of USD/JPY Based on the 4-hour chart:

📈 Technical analysis of the USD/JPY pair on the 4-hour chart

Using the technical analysis concepts we covered in our Forex course, let’s analyze USD/JPY.

Exponential Moving Averages (EMAs):

• 10 period exponential moving averageIt is located at the level of 147.14. The current price is only above This level indicates a potential short-term bullish momentum. The slope is To the topreflecting recent short-term strength.
• 20 period exponential moving average: It is located at 146.96. The price is a little high. above This level, which reinforces the short-term bullish momentum. The slope is To the topwhich supports the short-term trend.
• 50 period exponential moving averageIt is located at the level of 147.80. The current price is less This level indicates that the medium-term bearish momentum is still dominant. The slope is Downindicating possible resistance.
• 200 period exponential moving average: It is located at 152.98. The price is good. less This level indicates a long-term bearish momentum. The slope is Downconfirming the strength of the long-term downtrend.

Relative position of moving averages:

• the 10 period exponential moving average He is currently above the 20 period exponential moving average but less the 50 and 200 period exponential moving averagesindicating a short-term bullish crossover within a broader bearish context.
• the 20 period exponential moving average He is less the 50 and 200 period exponential moving averagesconfirming the continuation of downward pressures in the medium and long term.
• the 50 period exponential moving average Very much less the 200 period exponential moving averagereinforcing the long-term downtrend.

Moving Average Convergence/Divergence:

• MACD line is slightly down above Signal line, with a small positive reading at 0.112, indicating weak bullish momentum.
• However, the slight rise in the histogram indicates a potential shift towards more bullish sentiment in the short-term.

🕵️ Key Notes

Price action:

Let’s analyze the current price action:

1. Sharp decline: The most notable feature is the sharp and intense decline from mid-July to early August. The price dropped dramatically from around 162 to around 142, a huge move of about 20 yen in a short period.
2. Rebound: After the decline, there was a noticeable rebound, as the price recovered to around the 147-148 level.
3. Bottom operation: After hitting a low around 142, the price showed signs of stabilization and tried to form a bottom.
4. Unification: In the last few days (roughly last week based on the 4-hour chart), the price has been consolidating in a range of roughly 146-148.
5. Short-term fluctuations: Within the consolidation range, there were several attempts to move up and down, as evidenced by the wicks on the Japanese candlesticks.
6. Resistance test: The price made several attempts to break the 148 level which seems to be acting as short-term resistance.
7. Holding support: On the downside, the 146 level appears to be providing some support, with the price bouncing off this area several times.
8. Frequency candles: Many modern candles have relatively small bodies with longer wicks, indicating Frequency In the market and the struggle between buyers and sellers.
9. Low momentum: Compared to the initial sharp decline, the recent price action shows a decrease in momentum and more Sideways a movement.

Support and resistance levels:

• SupportsImmediate support is located at 146.00 (20-period EMA) and 145.00 (recent swing low).
• resistanceImmediate resistance is located at 147.80 (50-period EMA) and 148.00 (recent highs).
• The Great ResistanceMajor resistance at 200 EMA (152.97).

Breakout levels:

• Bullish breakout level: Over 148.
• Negative breakdown level: Less than 146.

Moving averages:

• The 10- and 20-period EMAs are currently acting as short-term support, while the 50-period EMA is providing significant resistance.

MACD:

• The MACD indicator indicates weak upward momentum, but the overall trend is still bearish.
• A sustained move above the signal line may indicate a stronger bullish shift.

🤔 Possible trade scenarios

He is USD/JPY Buy or Sell?

The following trading scenarios are provided for educational purposes only. Since they do not include full risk management practices, they are not intended to serve as actual trading recommendations, but rather as food for thought to help you generate your own trading idea.

Long bias:

• Entry pointConsider entering a long position if the price finds support near 146.00 (20-period EMA) or 145.00 (recent swing low) and shows signs of a bounce, such as a bullish candlestick pattern or positive divergence on the MACD. Additionally, a break above the resistance level at 148.00 could signal a potential recovery.
• Stop lossPlace a stop loss below the support level at around 144.50 to manage the risk.
• goalWe expect a move towards the 150.00 level and above if the uptrend resumes.
• RationaleTargeting the 150.00 level depends on the previous resistance level and psychological importance. If the price manages to break the 148.00 level, this indicates strong upward momentum and the possibility of further rise.

Short bias:

• Entry pointConsider entering a sell position if the price fails to hold the support level at 146.00 (20-period EMA) and shows signs of bearish momentum, such as a strong bearish candlestick pattern or the MACD histogram turning negative.
• Stop lossPlace a stop loss above the recent high at 148.50 to manage risk. This level is crucial as a break above it would invalidate the bearish setup.
• goalThe initial target could be the support level at 144.00. If the downward momentum continues, expect further decline towards 142.00 or lower.
• RationaleTargeting the 144.00 level initially is due to it being a psychological and historical support level. If the price breaks this level, it will indicate further bearish momentum and the possibility of a more significant decline towards the next support level at 142.00.

📝 TAOTD Summary

• Current position: Price in Frequency Area, testing short-term exponential moving averages and consolidation after a big decline.
• price actionThe price has been in a downtrend since mid-July, with lower highs and lows. Recently, the price found some support at the 145.00 level and is currently consolidating in the 146.00-148.00 range.
• directionThe long-term trend appears to be bearish with price below the 200-period EMA, but the short-term trend is showing signs of recovery with price above the 10-period and 20-period EMA. However, the medium-term trend remains bearish with resistance at the 50-period EMA.
• Main levelsSupport is at 146.00 (20-period EMA) and 145.00 (recent swing low), and resistance is at 148.00 (recent high and 50-period EMA).
• batchThe MACD is indicating weak bullish momentum, suggesting a short-term recovery could occur within a broader downtrend.

In short, while recent price action suggests that the overall trend is bearish, the recent consolidation and positioning near the short-term exponential averages indicate a potential change in the short-term trend. or Continuation of unification.

Traders will likely be watching closely for signals indicating whether this is a temporary pause in the downtrend or whether it forms the basis for a potential reversal.

The next important move could come through a decisive breakout either above the recent resistance or below the support levels created in this consolidation phase.

You should monitor the behavior around the consolidation range and look for a clear break of the current range for potential trading opportunities.

A drop above the consolidation level may indicate a potential change in trend, while a drop below the consolidation level may indicate a continuation of the downtrend.

Additionally, watch the price interaction with the shorter exponential moving averages to help identify the next short-term trend within this larger bearish structure.

Remember that this analysis is based only on the technical aspects shown on the chart. In real trading scenarios, it is more important to consider fundamental factors and broader market conditions such as risk sentiment.