Covid-19 Is On a Good Way To Cancel The Major Buy Signal On The USD/JPY

Coronavirus outbreak in South Korea and Italy, gave boost to the two main safe heaven currencies on the market: CHF and JPY. On the JPY, this strengthening is against the main bearish trend seen on the charts since the August 2019. Interesting setup can be seen on the USDJPY, where in the last week, the price created a legitimate buy signal, which currently is under the pressure coming from the Covid-19.

The positive sentiment towards the American Dollar in the USDJPY was coming from the breakout of the major, long-term resistance. This resistance was the upper line of the symmetric triangle formation, which was active since the 2015. Last week’s rise, especially on Wednesday, was very rapid and allowed the price to create a technical buy signal. Buyers did not hesitate and managed to pull the price towards the previous year high (around 112.20). This is where, the Covid-19 struck back and created a great background for the bearish counter attack.

Currently, we are under the influence of the bounce from the horizontal resistance mentioned above (112.20). From the technical point of view, the pull back is still nothing serious. The price very often aims the broken resistance, to test it as a closest support. Just like now.

Situation here is pretty simple. As long as buyers manage to keep the price above the upper line of the triangle, the sentiment is positive. When the price will come back inside the triangle, the false breakout protocol will be activated. You all know what that protocol means – usually a strong movement against the original breakout. In that case, buyers may be in a serious trouble.