USD/JPY Forex Technical Analysis – Spikes Higher on Algorithmic-Driven “Meltup”

The Dollar/Yen soared in early Asian trading on Wednesday as the break of key technical levels triggered massive stop-loss buys of the U.S. Dollar amid very thin trading conditions. Last year, we saw a similar move to the downside that the headline writers called a “meltdown”. Following that line of thought, let’s call this move a “meltup”.

At 05:19 GMT, the USD/JPY is trading 111.120, up 2.460 or 2.26%. The high of the session is 111.264.

With risk appetite high, the U.S. Dollar has been taking a beating against a basket of currencies for about two weeks. Today’s move took care of those shorts trying to drive the Dollar/Yen lower.

The surprise rally was exacerbated by a dearth of liquidity, with Japan and the U.S. on holiday for New Year’s Day. I would describe the event as a “market dislocation” rather than a fundamental event. Although the USD/JPY should’ve been rallying the last two weeks with the stock market hitting record highs.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed when buyers took out short-term tops at 109.706 and 109.728 as well as the May 30, 2019 top at 109.930 and the May 21, 2019 top at 110.677.

The main bottom is 108.471. A trade through this level will change the main trend to down. This is followed by retracement levels at 108.434, 108.136 and 107.746.

Main bottom support includes 108.434, 108.280 and 107.891.

Short-Term Outlook

I strongly suspect the pop to the upside was fueled by a liquidity vacuum and automated algorithmic trades which are carried out by computers in micro seconds.

If the rally continues through 111.264 then buyers may take a shot at the May 3, 2019 main top at 111.700.

If sellers regain control or the buying dries up then look for the USD/JPY to stair step lower with potential stopping points at 110.677, 109.930 and 109.371.