Japanese Yen, Major-Based JPY Index, USD / JPY – Analysts’ Choice
- Wider path for Japanese yen always looks dark
- The majors-based JPY index could hint at further losses
- There is room for a healthy correction in the USD / JPY
The Japanese yen is at risk of further losses, prolonging what have been general declines since the start of last year. On the weekly chart below is a majors-based Yen index, which averages its performance against the US Dollars, Australian dollar, Pound sterling and euro. When the index goes down, it means that the JPY generally weakens against its major peers and vice versa.
The index broke under a Descending triangle chart earlier this year, confirming the downward push in the following weeks. This opened the door to further losses. Last week, the index struggled to fall below 2019 lows, strengthening the area as key support – see chart below. But now the selling pressure on the JPY is leading the index to fall back below these lows once again.
Confirming a breakout may open the door to a general depreciation of the yen to its lowest since 2018. But to do so requires breaking through the 78.6% Fibonacci retracement on the chart below. Last week, prices stopped at precisely this point before leaving a fairly broad lower shadow behind. Conversely, if the 2019 lows hold up again as support, then the JPY could be due to a rebound.
Basically, the anti-risk Japanese yen could continue to weaken if market sentiment remains broadly bullish. Gains in the Dow jones and S&P 500 would probably be the main culprits. The recent nervousness over longer-term Treasury bond yields has caught the attention of central banks in developed countries. But, if the Federal Reserve continues to sit on hold and focus on short-term government bonds, the yen’s decline could slow.
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Japanese Yen Index Based On Majors – Weekly Chart
USD / JPY technical analysis
USD/ JPY is now eyeing the 106.86 – 107.05 resistance zone, guided higher by an ascending channel since the start of this year. If the pair manages to break through highs from August, this would subsequently expose June highs (107.94 – 108.16).
Still, the negative divergence of the RSI is a warning that the upward momentum is waning. This can sometimes precede a lower turn. It would not be too surprising to see a pullback towards channel support given that the pair faces an intersection between the August peaks and the ceiling of the rising range.
In the event of a downward reversal, it will not necessarily reverse the dominant uptrend since January. A key support level to watch under the channel appears to be on February 23rd low at 104.92. Given the potential for short-term losses, overall the path of least resistance appears tilted up.
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USD / JPY – Daily chart
— Written by Daniel Dubrovniksky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter