USDJPY penetrates multi-year resistance zone but needs to find support
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 .
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.
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.