USD/JPY Monthly Technical Analysis for May 2016

The most stunning news to hit the Forex markets last month came on April 28 with the release of the Bank of Japan monetary policy decision. The BOJ held off on expanding monetary stimulus, as Governor Haruhiko Kuroda and his colleagues opted to take more time to assess the impact of negative interest rates.

The move came as a surprise because a slight majority of traders and economists had projected some action from the central bank in response to a strengthening in the Yen that cast a shadow over prospects from higher wages and investment.

The Japanese Yen rallied against the dollar immediately after the decision, eventually driving it to an 18-month high later in the week. The USD/JPY finished the month sharply lower at 106.304, down 6.260 or -5.56%.

May starts out with a number of bank holidays in Japan so volume could come in below average. The thin trading conditions could create volatile two-sided swings.

The first major news with be on May 8 with the release of the Bank of Japan Monetary Policy Minutes. Since the BOJ decision came as a surprise, investors are want to know the details behind the move so the release of the minutes could be a market moving event.

There is no central bank meeting in May. The next monetary policy meeting is scheduled for June 16.

Technically, the main trend is up according to the monthly swing chart, however, momentum has been to the downside since June 2015. A trade through 100.816 will turn the main trend to down.

The main range is 100.816 to 125.847. Its retracement zone is 113.332 to 110.378. After holding inside this zone for two months, the USD/JPY closed under it, signaling a strong downside bias. This zone is new resistance.

Based on April’s close at 106.304, the direction of the market in May is likely to be determined by trader reaction to the long-term uptrending angle at 106.816.

A sustained move over 106.816 will indicate the presence of buyers. This is likely to be profit-takers and aggressive buyers playing for an intervention by the BOJ. This could create enough upside momentum to trigger a short-covering rally. The first target is the Fibonacci level at 110.378.

A sustained move under 106.816 will signal that the selling is getting stronger. The first target is a long-term uptrending angle at 103.816. This is the last major angle before the 100.816 main bottom.

Watch the price action and read the order flow at 103.816 all month. Treat this price like a pivot.