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James Hyerczyk
Monthly USD/JPY
Monthly USD/JPY

The USD/JPY finished higher in October, posting a close at 120.645, up 0.7670, or 0.64%. Although the Forex pair closed higher last month, the price action was actually two-sided.

The USD/JPY initially broke after the release of a dismal U.S. Non-Farm Payrolls report in early October. It bottomed on October 15, corresponding with a bottom in the U.S. equities market. The Forex pair sold-off on the last day of the month when the Bank of Japan decided to refrain from implementing additional stimulus.

The U.S. Dollar weakened against the Japanese Yen early in the month when a disappointing jobs report changed investors’ minds about a December 2015 rate hike by the Fed. Value-seeking investors stepped into stocks on October 15, reigniting the carry-trade and sending the USD/JPY higher. Finally, late in the month, investors shrugged off a hawkish Fed statement and instead shifted their focus to the dovish BoJ decision to refrain from additional stimulus.

Monthly USD/JPY

Technically, the main trend is up according to the monthly swing chart. The short-term range is 125.847 to 116.164. Its 50% level or pivot is at 121.006. Trader reaction to this level will likely determine the direction of the market this month.

Based on the close at 120.645, the first key angle to watch comes in at 120.847. Overtaking this angle and the pivot at 121.006 will set a bullish tone. A sustained move over this area will likely lead to a test of a downtrending angle at 123.347. This is followed by another angle at 124.597. This is the last potential resistance angle before the 125.847 top.

A sustained move under 120.847 will signal the presence of sellers. The daily chart is open to the downside with the first target an uptrending angle at 118.816. This angle has given the market guidance for 17 months. A break through this angle will signal a major shift in investor sentiment. This will open up the USD/JPY for a potential break into 116.164.

Traders could be confused by the fundamentals this month so the emphasis should be on the price levels. Fundamentally, the possibility of higher U.S. rates should be bullish for the U.S. Dollar. However, passing on additional stimulus could give the Japanese a boost.

Therefore, look for a bullish tone to develop on a sustained move over 121.006 and a bearish tone to develop on a sustained move under 120.847. Try to keep it simple this month. 

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