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Technical View for July 1st 2022: USD/JPY Displaying Signs of Slowing Momentum; ¥135 Eyed

By:
Aaron Hill
Published: Jun 30, 2022, 19:41 UTC

Despite working with a defined uptrend, price action hints at a short-term bearish phase, targeting at least ¥135 on USD/JPY.

Japanese Yen FX Empire

In this article:

Charts: Trading View

(Italics: Previous Analysis)

EUR/USD:

Risk aversion gripped financial markets on Thursday; European and US equity benchmarks explored lower territory, and safe-haven currencies—the Swiss franc and Japanese yen—welcomed a bid. EUR/USD finished the session off worst levels, yet concluded the month decisively in bearish terrain (> 2.0 percent).

Following a whipsaw beneath the psychological figure $1.04 (H1) in early US hours, touching a low of $1.0383, EUR/USD bulls put in an appearance. Note that the whipsaw came within a whisker of shaking hands with Quasimodo support on the daily timeframe at $1.0377, while weekly price continues to engage support between $1.0298 and $1.0445 (Quasimodo resistance-turned support at $1.0298, 2nd January low at $1.0340 [2017], and a 100% Fibonacci projection at $1.0445 [AB=CD harmonic bullish formation]).

While the whipsaw and the presence of higher timeframe support has appealed to buyers, the overall vibe in this market remains directed southbound, according to my current trend analysis:

The general trend reflects a primary bear trend, establishing a series of lower lows and lower highs since 2021. Adding to this, seen from the monthly timeframe, the vibe has been to the downside since topping in April 2008. The trend, therefore, is likely one of the main factors discouraging any meaningful buying from current weekly support.

The technical framework on the H4 chart shines the spotlight on prime resistance at $1.0655-1.0632, and Quasimodo support coming in from $1.0345. From the H1 scale, however, candle action is within striking distance of connecting with the lower side of $1.05. While a break of this level has ‘some wood to chop through’ around $1.0520, upside is reasonably free until the $1.06ish neighbourhood (set beneath H4 prime resistance).

Technical Expectation:

Although we have weekly and daily support in the technical equation, the downside bias evident since the beginning of 2021 is unlikely to allow much in the way of follow-through buying. $1.05, therefore, will likely be a watched base today; a rejection helps confirm bearish intent while a healthy breakout above the level informs traders that buyers still have fuel left in the tank and could zero in on $1.06, and perhaps H4 prime resistance from $1.0655-1.0632.

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AUD/USD:

While it was a positive session for the risk-sensitive Australian dollar—movement that pulled AUD/USD north of $0.69—the underlying tone in this market continues to swerve in favour of sellers.

In terms of weekly and daily timeframes, here’s where we left Thursday’s analysis (italics):

I feel sellers have largely dominated control on the weekly scale since early 2021, together with scope to drop lower to support between $0.6632 and $0.6764 (composed of a 100% Fibonacci projection, a price support, and a 50% retracement).

The monthly timeframe has portrayed a downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is likely viewed as a deep pullback among long-term chartists. Downside from the 2021 February top (an early primary bear trend), therefore, is potentially seen as a move to explore lower over the coming weeks.

The weekly timeframe’s picture, coupled with daily price on the verge of absorbing Quasimodo support at $0.6901 and the chart’s relative strength index (RSI) continuing to explore space under its 50.00 centreline, suggests weekly support is calling for attention (which houses the next downside daily support target at $0.6678).

Against the bearish backdrop on the bigger picture, the H1 timeframe watched price find grip north of $0.69, action potentially paving the way towards resistance at $0.6950 in light of limited supply to the left of current price.

Technical Expectation:

Long term, technical studies side with sellers and project a breach of daily Quasimodo support from $0.6901 and a subsequent test of weekly support between $0.6632 and $0.6764. Short term, on the other hand, opens the door to a test of H1 resistance at $0.6950 (a location sellers could make a stand from), following a break of $0.69.

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USD/JPY:

Risk-off forces dominated price action on the last trading day of June, underpinning the safe-haven Japanese yen and weighing on USD/JPY. Snapping a 4-day winning streak, price movement on the weekly timeframe hints at slowing momentum from resistance forged between ¥137.23 and ¥136.04, shaped by way of back-to-back upper candle shadows (not precise enough for me to label these as ‘shooting stars’).

Decelerating momentum can also be seen through the daily timeframe’s relative strength index (RSI), forming bearish divergence and holding outside of its overbought territory. Despite weekly resistance pointing to a possible dip in the currency pair, we have remained entrenched within a decisive uptrend since 2021, and the daily timeframe’s structure, following a decisive rebound from supply-turned demand at ¥131.93-131.10, demonstrates room to strike as far north as Quasimodo support-turned resistance at ¥139.55.

A closer reading of price action on the H1 scale reveals a risk of a further decline after clearing bids around ¥136. ¥135.50 warrants attention as support (previous Quasimodo resistance), while a break exposes ¥135. Interestingly, the H4 decision point coming in at ¥134.49-135.43 puts forward a vulnerable position. Though holding back sellers last week, the break of its lower edge signals weakness within the zone and ultimately implies a drop as far south as H4 Quasimodo resistance-turned support at ¥131.25.

Technical Expectation:

Despite this market working with a defined uptrend, price action hints at a short-term bearish phase, targeting a break of H1 Quasimodo resistance-turned support at ¥135.50 and a follow-through move to at least ¥135. Breaking the H4 decision point at ¥134.49-135.43, nonetheless, projects the unit could reach towards at least ¥134.

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GBP/USD:

Sterling ended Thursday positively versus the US dollar, rebounding from a H4 AB=CD completion point at $1.2091 (100% Fibonacci projection). Common upside objectives, based on the AB=CD formation, reside at the 38.2% and 61.8% Fibonacci retracement ratios from $1.2212 and $1.2286, respectively, followed by H4 prime resistance at $1.2411-1.2359.

Aiding the H4 pattern on Thursday, of course, was a test of $1.21 heading into US hours on the H1, which has led the currency pair to within a stone’s throw of $1.22.

In terms of the overall trend for GBP/USD, here’s what I noted in previous analysis:

Trend direction in this market is unmistakably bearish, fashioning a series of lower lows/highs since February/May’s double-top formation at around $1.4241 in 2021. Furthermore, seen through the monthly timeframe, the long-term downtrend has actually been soft since late 2007 tops at $2.1161.

As for technical structure on the higher timeframes, my analysis also remains unchanged:

Quasimodo support at $1.1958 remains in the picture on the weekly timeframe. Despite mid-June chalking up a noteworthy lower shadow from the noted support, follow-through buying has been light this week. I initially believed the $1.1958 reaction could drum up sufficient backing to reach trendline resistance on the daily timeframe, taken from the high $1.3639. While this is not off the table, buyers appear lethargic at the moment.

Leaving the latter unchallenged, nonetheless, a retest of weekly Quasimodo support could now be on the cards and, according to the trend, a break lower may unfold. Supporting a bearish theme, of course, is the daily timeframe’s relative strength index (RSI) remaining under its 50.00 centreline (negative momentum).

Technical Expectation:

Short term, the area between the H4 timeframe’s 38.2% Fibonacci retracement at $1.2212 (the initial upside target out of the H4 AB=CD pattern) and $1.22 on the H1 delivers a resistance to potentially work with today. Consuming this zone hints at a possible approach to $1.23, while a rejection (in line with the overall trend) suggest sellers may attempt to pursue levels beyond $1.21.

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About the Author

Aaron Hillcontributor

Aaron graduated from the Open University and pursued a career in teaching, though soon discovered a passion for trading, personal finance and writing.

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