USD/JPY: Technical outlook and review...

FX:USDJPY   U.S. Dollar / Japanese Yen
254 0 7
Weekly gain/loss: + 426 pips
Weekly closing price: 110.85

Weekly view: The US dollar             continued to soar last week following the prior week’s engulfing candle, pressuring the unit to chomp through offers at a resistance area drawn from 105.19-107.54 (now acting support), with price ending the session colliding with supply coming in at 111.44-110.10. Upbeat US data, rising yields and prospects of a potential rate hike in December all contributed to last week’s follow-through buying. Assuming that the bulls remain dominant this week, the current supply may very well be consumed. Nevertheless, it’s certainly not plain sailing after that, as there’s a lot of wood seen to chop through between the 114.87/111.44 area (green circle) before touching gloves with resistance penciled in at 116.08.

Daily view: Things are not looking too bright for the current weekly supply! The daily Quasimodo line at 110.58 was engulfed going into the week’s close, and assuming that the bulls defend this line as support this week, we may see the couple head towards supply carved from 113.80-113.16. Nevertheless, our desk has also noted that they will only consider the current Quasimodo resistance invalidated once a daily close is seen above the apex of this formation at 111.44, which is actually the top edge of the weekly supply!

H4 view: (Trade update: Stopped out at 110.85 – please see Friday’s report for details).

The USD/JPY             beautifully retested the 110 handle mid-way through Friday’s session, which, as you can see, propelled the candlesticks to highs of 110.94, six pips ahead of the 111 handle. A decisive close above this boundary could set the stage for a continuation move north up to the 112 region and, by extension, further corroborate our thinking regarding a possible drive towards the daily supply mentioned above at 113.80-113.16.

Direction for the week: A pullback may be on the cards this week according to the weekly and daily structures. However, in view of the near-full-bodied weekly bullish candle, this may be interpreted as strength and therefore further buying may take place.

Direction for today: The 111 handle is key today. An upside rejection from this barrier could pressure the daily candles to close back below the Quasimodo resistance. To the flipside, a sustained move above 111 likely portends, as we explained above, a move up to 112 may be on the cards.

Our suggestions: A solid rejection from 111 could, in light of the higher-timeframe structures in place, be sufficient enough to permit a short down to 110. A close above 111, however, followed by a retest and a H4 bullish close would, at least in our view, be enough to take on a long position, targeting the 112 handle and possibly even the 113 barrier given this is planted just below the aforementioned daily supply.

Levels to watch/live orders:

• Buys: Watch for a close above the 111 handle and then look to trade any retest seen thereafter (waiting for a H4 bullish close to form following the retest is preferable prior to pulling the trigger – stop loss: ideally beyond the trigger candle).
• Sells: 111 handle (watch for a solid rejection off this number before considering shorts, stop loss: ideally beyond the rejection candle).

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