At the auction of the past five days, the US dollar strengthened against all its competitors, except for the Japanese yen. For those who have forgotten or are not aware at all, let me remind you that the week before last, all the major allied currencies capitulated to the "American" except for the Japanese yen. It is characteristic that over the past months, such a picture has been repeated with enviable frequency. In my personal opinion, the issue here is the protective status of both currencies. Apparently, investors do not want or are afraid to put their eggs in one basket and are thus insured. It has been the case on the market for a long time, and I think this approach is correct.
Weekly
So, as already noted at the beginning of the article, except for the Japanese yen, all major currencies declined against the US dollar at the auction on July 12-16. Only the situation with the COVID-19 pandemic began to stabilize gradually. Just like mushrooms after the rain, new strains began to appear, which in turn began to mutate. First of all, this can be attributed to the most dangerous Delta strain of COVID-19 to date. There is no way to get rid of it and fully return to a normal lifestyle without masks and other restrictions.
At the beginning and peak of COVID-19, the US dollar served as the main safe-haven from the COVID pandemic, and the "American" was in stable and fairly strong demand for a long time. However, the situation has changed recently. Now, along with the US dollar, the Japanese currency shares the palm of primacy as a safe-haven currency, the demand for which has been growing in recent months. It is quite possible to disagree that there is a stronger demand for the yen than before. For example, on the "week," the dollar/yen is trading in a fairly decent-sized range of 107.48-111.68. After the formation of the week before the last candle with an exceptionally long upper shadow (it is circled on the chart), it became evident that the powder in the bulls' flasks for USD/JPY has ended or is damp. The point is that the pair could not gain a foothold above several very strong and significant levels for the market, which include 111.00,111.12,111.35, 111.45, and 111.65.
In addition, the bearish divergence of the MACD indicator is visible on the weekly chart, which is very serious. If the market starts to work out this diver, the pair risks falling to 105.00 or even lower. In the meantime, the nearest support for the price is provided by the red line of the Tenkan Ichimoku indicator. However, the time of its influence on the pair is coming to an end, which means that market participants will rush to storm the nearest and is extremely important for the further price dynamics of USD/JPY support or resistance. The support takes place in the technically very significant and strong area of 108.00-107.50. The orange 144 exponential average may very well add to the headache for the bears. In case of its breakdown, the blue Kijun line will come into play, exactly at the support level of 107.48. If we summarize the analysis of the weekly chart, then the most optimal positioning is sales after rises to the designated resistance levels and purchases after a decline in the support area of 108.107.50. Let's look at a smaller time interval. It might open our eyes to the nearest direction of the dollar/yen price movement.
Daily
Looking at the daily chart, we have to admit that it did not meet our expectations regarding the hint of the further direction of this trading instrument. In my opinion, everything is even more confusing here. The range in which the pair is trading is significantly less than the weekly one, and it can be safely designated as 110.72-109.56. As you can see, the Tenkan and Kijun lines do not let the pair go up, and the blue 50 MA is trying its best to support the pair below, as well as the upper border of the daily cloud of the Ichimoku indicator.
Trading recommendations for USD/JPY:
Based on all of the above, we can agree that both purchases and sales can be relevant in the current situation. Using the trading strategy in ranges, you can buy or look closely at the opening of long positions after declines to the area of the iconic psychological level of 110.00 and 50 MA. If the pair falls below 110.00 and fixes below this mark, we are waiting for a quote in the area of 109.60-109.30, and after the appearance of the corresponding bullish signals, we buy. Sales can be tried starting from 110.50. It is here that the daily Kijun line passes, which provides fierce resistance to growth attempts. We are looking for sales at more attractive prices in the area of 111.00-111.50 and on the approach to the key resistance of sellers at the moment at 111.68. In my personal opinion, it is better to wait for the true exit of USD/JPY from the daily range of 110.72-109.56, after which it is better to make decisions about entering the market.
The material has been provided by InstaForex Company - www.instaforex.com