The USD/JPY pair has been rather difficult to trade lately. On September 18 we saw the pair fall over 120 pips only to watch it reverse and climb over 180 pips the following day on the Fed’s ‘No Taper’ news. Since then, like most of the majors we have been drifting lower, about 50% of last week’s range currently with direction hard to establish.
While looking over the various time frames I notices 2 things...we have a 180 pip daily bullish engulfing candle off of the support level at 97.90, and a what appears to be a 4 hour inverted head and shoulders. The left shoulder formed between September 13-16 while the right shoulder appears to be forming now. Only a move above 99.00 will lend the formation credibility, but it does look promising.
Resistance waits at 99.50, 100.50 and 101.20 but a dally close back above 101.50 could see traders move towards the elusive 105 level once again. With so much uncertainty from the central banks however, this pair could easily fall, on a strengthening YEN or weakening US Dollar or both. But with oil prices falling below 103.50 per barrel recently, the YEN may continue to strengthen. (Note, for those that aren’t aware, Japan imports almost ALL of its oil). If it should continue to aim lower, watch for support at 98.50, and 97.90 & 97.00.
