Forex Technical Update       

Previous: USD/JPY - Inverted Head and Four Shoulders? (5/15)

USD/JPY4H Chart 5/16/2012 9:52AM EDT


USD/JPY indeed bottomed out in the short-term and broke above a declining channel resistance. The 1H chart shows the bottoming formation. There is resistance in the 80.50-80.60 area. This is the May high established in the beginning of the month.

Above this pivot, some resistance can be expected near 81.00, and then again at 81.78. If we do extend our corrective rally, which can be confirmed by holding above 80.00 on a throwback, the 81.78 level could be the maximum bullish outlook in the short-term for now.

USD/JPY Daily Chart 5/15/2012 10.29AM EDT


Why limit the outlook to 81.78 for now? Let's assume that USD/JPY is neither bullish nor bearish but entering another sideways market, with resistance at 84.15 and support at 79.40. In a range bound market, the short-term bullish attempt from support can be just a reversion toward the mean. In this case, 81.78 is 50% retracement, and also a pivot that was support in March and then resistance in April.

There is a chance to rally higher, but the higher it goes, the farther it will be from the middle of our proposed range, and the higher the tendency will be to return toward the middle. As far as reward to risk assessment goes, it is probably better to stay conservative and expect just a reversion to the middle or fair price, a scenario with a higher chance than a push from the middle to range resistance.

Join the Market Intelligence Briefings to get fundamental analysis technical setups, trade plan assessments for USD/JPY, and other currency pairs.

Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.