USD/JPY Technical Setup Dragging Along

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Key Talking Points:

  • USD/JPY aiming to consolidate its pullback as it breaks below 109.50
  • Weaker US CPI clouds the Dollar as safe-haven demand lifts the Yen

USD/JPY has been more resilient than I originally expected and is dragging out the consolidation of the symmetrical pattern it’s in. The final leg of the pullback has been extended as the pair found support around 109.115 back in mid-August, but even after accepting a widening of the final arch, sellers have been unable to make a significant breakthrough, which now makes me question whether we will see the pattern fully consolidate in the end.

USD/JPY Daily chart

The original target was 108.50 but USD/JPY has been well supported at 109.50 throughout the last month of trading, only managing to finally break below in the trading session this morning. What’s interesting is that most daily candlesticks on this chart have a long tail on either side, which shows reluctance from traders to commit to a direction. Take Tuesday’s candlestick for example, USD/JPY went as low as 109.53 throughout the session but close around 109.74, meaning sellers have had to cover an extra 21 pips if they wanted to continue the bearish reversal in today’s session. The fact that we are seeing so many of these tails raises the question as to whether the pullback will be able to gather steam anytime soon.

The US Dollar hasn’t been doing much as of recent, even after a faltering cpi reading, whilst the Japanese Yen is picking up safe-haven demand as rising covid-19 cases cloud growth hopes and the recent news about financial distress in one of China’s biggest developers (Evergrabde) which puts systemic risk on the Chinese economy and the wider financial systems.

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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