USD/JPY: Bullish Structure Still Valid, Origin of Demand Tested

The daily shows price retesting an area of demand between 113.50-80, which marks the origin of the spike to a weekly resistance area at 114.60. The increase in sell-side tick volume with a tail at the bottom is indicative of a market still interested to engage in buy-side action at cheaper prices and is so far absorbing the diversification back into yen following Thursday's 'risk-off' flows. Notice how in the daily chart, the sharp retracement has come as a function of a setback in equities (red line), not replicated by the performance of the 30yr US Treasury yield (green line), still holding near multi-year highs and the same applies to the DXY (blue line), well positioned to keep strengthening despite suffering a minor blip lower on Thursday.

On the hourly chart, the conclusion is that bulls are still keeping control of the price, although some challenges are being faced. Firstly, the structure remains bullish, which supports the notion of still being a buyer on dips. The fact that the latest bullish rotation exceeded in magnitude the previous one, as indicated by the arrows in the hourly, constitutes a bullish input in terms of structure that the market will be factoring in. What's should not be that comforting for buyers at this stage is the impulsive sell-off from highs, which has been followed by a more compressive correction. However, the daily still suggest, via the formation of a decent tail at the bottom, that the increase in sell-side activity has so far found grateful buyers.

When all things considered, and bearing in mind that the US NFP will invalidate the relevance of nearby levels, the risk appears to be skewed towards the upside as long as offers don't get filled sub 113.50. If the latter scenario occurs, the structure on the hourly will suffer some cracks and we may be entering a period of consolidation. In the big picture, the bullish trend in the USD/JPY remains very strong, hence overall, the strategies set to yield the most bang for one's buck still appear to be the long-side business.

Note: Each scenario has been prepared without taking into account your objectives, financial situation or needs or trading plan. Before acting on any information or advice, you should consider the appropriateness of it having regard to your circumstances. Please read our Financial Services Guide and current offer document which is available to be downloaded from www.globalprime.com.au or hard copies may be sent by contacting us on the details provided on this website.