Short-term technical outlook on USD/JPY (Thurs 03 Jan)
- The risk sensitive USD/JPY has declined significantly in swift movement seen in today, 03 Jan early Asian session at 6.00 a.m (S’pore time). Within a short-span of 15 mins, it tumbled by close to 4 big figures (400 pips) from a high of 108.66 to print a current intraday low of 104.70. This type “flash crash” in terms of magnitude is the steepest so far since the outcome of the Brexit vote on 24 Jun 2016.
- After the bullish breakout from its former long-term primary descending resistance in place since Jun 2015 high of 125.85 on 11 July 2018, the USD/JPY has failed to make any headway above the “stubborn” major range resistance of 114.10/40 in place since May 2017. Today, Asian session morning “flash crash” has led the pair to reintegrated below the 108.10 pull-back support of the former primary descending resistance (see weekly chart).
- The current intraday low of 104.70 has managed to stall close to the 26 Mar 2018 swing low of 104.56 and the ascending range support in place after the post Brexit vote low of 99.00 printed on 24 Jun 2016. However, momentum reading from the weekly RSI oscillator is not so promising on the upside as it is now breaking below a similar significant corresponding ascending support at the 36 level. These observations suggest a revival of long-term downside momentum of price action which indicates a potential bearish presignal on a breakdown below the aforementioned 104.56 low. There no signs of a significant bullish reversal at this juncture yet (see weekly chart).
- Interestingly, the on-going significant decline seen in the USD/JPY came as a follow up in the recent weakness seen in China manufacturing PMI data for Dec where both the official and Caixin (consists of smaller manufacturing firms) indicated contraction in China manufacturing sector. In addition, Apple, a bellwether stock in major benchmark U.S. stock indices (S&P 500 & Nasdaq 100) and passive investment portfolios (ETFs) has downgraded its Q1 revenue forecast yesterday after the close of the U.S. stock market, the first time in 20 years, cited a challenging business environment. The USD/JPY, being a key proxy of risk on/risk off and this morning Asian session movement suggests that the recent decline in risk assets seen in Q4 2018 is likely not over yet.
- In the shorter-term, today’s Asian session plunge seems “overstretched” where a minor corrective rebound may occur first at this juncture to retest the 108.10 intermediate resistance which is defined by a confluence of elements. The pull-back resistance of the former minor descending channel support bearish breakdown, the former medium-term swing low of 25 May 2018 and the reintegration line/failure bullish breakout of the former primary descending resistance from Jun 2015 high (see 1 hour chart)
- The key short-term resistance stands at 108.90 which is defined by the 61.8% Fibonacci retracement of the last minor impulsive downleg sequence from 27 Dec 2018 high of 111.40 to today, 03 Jan current intraday low of 104.70, the former minor swing low of 02 Jan 2018 European session and the 34-period EMA that has capped previous minor rebound since 31 Dec 2018.
- The next near-term supports rest at 102.95 and 102.30 defined by the medium-term congestion range support from 06 Oct/03 Nov 2016 and a Fibonacci extension cluster (see 1 hour chart).
Key Levels (1 to 3 days)
Intermediate resistance: 108.10
Pivot (key resistance): 108.90
Supports: 104.56, 102.95 & 102.30
Next resistance: 110.00
Current technical elements are not advocating a medium-term bullish reversal scenario at this juncture despite today’s Asian session flash crash has managed to find support at the ascending trendline in place since 24 Jun 2016 low (the aftermath of the Brexit vote).
The pair may see a minor rebound to retest the 108.10 intermediate resistance first (hourly Stochastic oscillator has bounce up from oversold region) with key short-term pivotal resistance at 108.90 before another potential impulsive downleg materialises to retest 104.70/56 before targeting the next support at 102.95.
However, a clearance above 108.90 invalidates the bearish scenario for a further corrective rebound towards the next intermediate resistance at 110.00 (the descending channel resistance from 14 Dec 2018 high & the former medium-term swing low area of 21 Aug 2018.
Charts are from eSignal
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