Overview of long-term price action If we look at market movement over the last ten years, the USD/JPY appears to be in a stronger position. During this time, the exchange rate has fluctuated from a low of 75.00 in 2011 to a high of 111.00 in the second quarter of 2021. However, for forex traders who frequently enter and exit positions on periods ranging from a few days to weeks, this information may not be very relevant or actionable. As a result, we concentrate on what has happened in a shorter period of time. Download our free 3Q trading advice from the DailyFX Free Trading Guides to read the complete Japanese Yen forecast, including the fundamental view! On the weekly chart, we can see that USD/JPY has been trading with a negative bias for the past seven years, moving within the constraints of a long-term descending channel and hitting progressively lower highs. In fact, every yearly high since 2015 has been lower than the previous yearly high. This pattern is illustrated in the table below: After years of continuous falls, the USD/JPY has been steadily increasing in the first half of 2021, returning nearly 8% from its January low of 102.60. Following this strong rise, the pair now faces critical resistance near 111.00/111.20, a technical barrier created by the upper limit of the previously mentioned long-term bearish channel (see weekly chart below). Traders should keep a close eye on price action dynamics in this area because if resistance is broken, the pair might rise much more and reach a new yearly high above 112.23, ending the lower highs pattern that has been in play since 2015. Needless to say, the greenback’s bullish momentum could be boosted by this breakout. WEEKLY CHART OF THE USD/JPY (2011-2021) Diego Colman drew this diagram. IG is the source. In the face of a probable breakout, the USD/JPY medium-term bias points to the higher. Zooming in on the daily chart, we can see that the second quarter was marked by moderate levels of volatility for USD/JPY, although the pair ended the three-month period barely changed, thanks in part to a dollar surge in the latter weeks of June. The greenback regained some of its luster when the Federal Reserve delayed raising interest rates until 2023 and began preliminary discussions about reducing asset purchases. The FOMC’s hawkish turn quickly propelled the USD/JPY beyond the critical barrier of 111.00, but subsequent purchasing momentum looks to have slowed as lower US treasury yields at the long end of the curve dampened enthusiasm for long dollar exposure. In any case, despite market turbulence and several ups and downs in Q2, the USD/JPY appears to be in an uptrend over the medium term, beginning in early January. The occurrence of higher lows driven by a six-month ascending trendline, as well as the fact that price is above its 200 day moving average, verifies this inclination (see daily chart below) The pair must decisively move above confluent resistance near 111.00/111.20 for the bullish impetus to accelerate in the third quarter. The USD/JPY picture would be biased higher if bulls were able to push prices over this ceiling, with the 2020 high at 112.33 becoming the immediate focus, followed by the 114.55/114.73 level. USD/JPY must maintain above the April swing low (107.48) and the 200 day SMA for the bullish situation to hold. On the other hand, if the USD/JPY fails to break through the 111.00/111.20 level and pivots lower, sellers may reclaim control of the market and force a decline down trendline support, which is now near 110.00. If prices fall below this level, the next important support comes in at 107.48, which is the floor created by the April swing low. If this technical support is broken, downside pressure may increase, potentially leading to a big sell-off. Diego Colman’s graph, courtesy of IG/n
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