MNI MARKETS ANALYSIS: USDJPY Trend Signals Continue To Point North

Executive Summary:

• USJPY has been in an uptrend since a reversal in early January 2021.
• Looking at various price frequencies, monthly and daily, technical trend signals suggest the direction is likely to remain up.
• This highlights potential for an appreciation towards 120.00 next.

USDJPY has been in an uptrend since early January 2021 where it reversed from a 102.59 low. Technical signals suggest the bull trend remains intact and that during Q1, a continued appreciation in USDJPY is likely ahead of the next psychological level of 120.00.

A point and figure (P&F) chart provides a clear overview of the current uptrend. This chart applies a moving average study to determine the slope of the average. The slope verifies the trend direction and assists in identifying areas of support - the buy zone - where demand is likely to confirm a resumption of the primary uptrend.

In the P&F chart above, the key observations are:

• The slope of the moving average study is positive.
  • This suggests that the trend is up and note that this condition has been in place since February 2021.
• The ‘buy zone’ represents price levels below the EMA study, during an uptrend. A ‘buy zone' highlights an area of strong support. Once in this zone, price is expected to:
  • Establish a base.
  • Highlight a reversal of the preceding bear cycle.
  • Finally, deliver a recovery that confirms a resumption of the uptrend.
  • This occurred in the Aug - Sep 2021 period and more recently in early December.
• A key support on this chart has been defined at 112.60, the late Nov early Dec lows. A P&F double bottom on the chart at 112.60 suggests that a break, if seen, would signal a broader top in the trend.
• With the current uptrend intact, potential exists for a climb towards the the psychological 120.00 handle.

The monthly chart above highlights some interesting trend developments and key chart points.

• A long-term trendline resistance drawn from the Dec 1975 highs has been breached, in Oct last year.
• This has exposed a second flatter line, drawn from the Apr 1990 high. The line intersects at 116.95 this month and a break would reinforce the current bullish set-up.
• Note that these trendlines only highlight important chart points and resistance.
• A break would merely reinforce current conditions and would not represent a major long-term trend reversal.
• Gains above 120.00 would suggest potential for a climb towards a key resistance at 125.86, the Jun 2015 high over the medium-term.

Recent price action in USDJPY in the chart above suggests the short-term outlook is again beginning to appear favourable for bulls.

• Moving average studies are in a bull mode highlighting an uptrend.
• The recovery on Jan 14 from below the 50-day EMA is a bullish development. This is reinforced by a reversal signal on Jan 14 - a doji candle pattern.
• The 113.49 level marks a key short term support where a break is required to reinstate a short-term bearish threat. A recovery would expose the 116.35 high from Jan 4. A break here would confirm a resumption of the uptrend.