USD/JPY Forecast:US dollar to face headwinds above - 14 October 2019

The US dollar has had a very strong trading session on Friday, reaching towards the 200 day EMA at the ¥108.50 level. That’s an area that is the top of the most recent consolidation area, and although we have made a slightly “higher high” during the day, we are starting to give up some of those gains and quite frankly there is significant resistance extending above here and toward the ¥109 level anyway.

Further, getting things is the fact that this is a very risk sensitive Forex pair, and it will move to whatever happens with the Americans and the Chinese involving trading negotiations. The negotiations have been messy to say the least over the last year or so, and now people are looking for some type of guidance as to where we go next. If the deal gets signed and it’s something substantial, this pair will probably take off to the upside. However, if the deal fails, or if things break down a bit, it’s very likely that this market will break down from this area.

Unfortunately, the results of the US/China trade deal will probably be known only after the markets close, and that of course means that we are probably looking at a gap at the open. It will be interesting to see how markets open after whatever headlines come out. Ultimately, this is a market that will be very sensitive to those Chinese headlines. If the deal gets signed then it’s likely that we will go looking towards the ¥110 level. Alternately, if the trade negotiation is very soft and uninspiring, we could see a bit of a gap lower, perhaps with an eye on the ¥107 level underneath. All things being equal we are still essentially in a range, although things could change very rapidly based upon random headlines coming out of the United States and China. Quite frankly, this is a market that you do not want to have a position on going into the weekend, as you could find yourself 100 pips on the wrong side of the trade suddenly.

If we get a gap at the open on Monday in Asia, that’s probably the direction we continue to go for the next several days as it will more than likely be a significant move based upon a significant fundamental headline. Expect a lot of noise, because it is most certainly coming.

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Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.