USDJPY overcomes signifiant resistance but consolidation necessary
The USDJPY currency pair is trading on the other side of a multi-year support resistance zone. By trading at least 6 weeks above a zone centred around 103.00, USDJPY appears to have conquered the resistance decisively – not one of those false breaks that quickly turn into a rout. It is logical to expect that same zone to become a support instead.
We covered USDJPY price action around 103 at least twice last year in these stories ‘Significant support resistance levels are stronger: USDJPY case study‘ and ‘Recall this long term USDJPY support resistance level at 103‘. The 103 zone is a confluence of 38.2% Fibonacci Retracement drawn from 1998 high to 2008 low as well as multiple year horizontal support (which are numbered in chart below). It is a well-tested zone .
USDJPY penetrates significant resistance; zone expected to become support
Support expected but can it be trusted?
Technical analysis works on probabilities but there are “rules” to follow.
One of those rules is ‘Support and resistance are interchangeable’.
- By breaking above a resistance level, that same level becomes a support.
- The more significant the resistance level is, the more significant it is as a support.
- Traders should now expect price to consolidate above.
- The consolidation is a process whereby early entrants exit their position while late entrants make their move.
- The consolidation itself becomes a discovery process for players: how low will it retrace downwards and hence where is support? Not a support based on a ‘rule’ but observation of actual price action.
Price action at 4-hourly chart
The 4-hour chart provides the first hint of support as we can see USDJPY crossing then rebounding from the 38.2 fib ratio briefly. For such a significant level that took quite some time since May 2013 last year to overcome (first recent encounter), any consolidation here may also take some time.
Price action shows USDJPy rebounding after crossing fib retracement level briefly
Other considerations for USDJPY
- The entire support resistance zone is quite wide so wait for price action to reveal support levels.
- Expect sideways movement.
- If the zone retains support, USDJPY reverses a 6-year move below this key level.
- In the race between US Federal Reserve and Bank of Japan to depreciate their currencies, BOJ appears to be the winner.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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