Safety First for Japanese Yen

Have you spotted something unusual happening with the Japanese Yen? With the likes of protectionism dominating global headlines, the Yen is weakening amid broader risk aversion which is out of character for the currency.

A Confidence crisis among Asian markets

You have to wonder if the currency is absorbing some of the inherent uncertainty brought about by various negotiations in the region or whether there is something else at play? Historically, we would expect to see signs of strength returning to the Yen in the USDJPY pair but so far we have not seen a great deal.

Looking at the Daily charts below, evidence of bullish activity is rife. We see price action firmly in an uptrend above the longer-term moving averages and posting positive gains for July.

USDJPY – Daily

At this stage, the chart suggests we might see a change in direction given the Relative Strength Index (RSI) is quite overbought, but it is hard to give this idea much validity in contrast with the other indicators.

I suspect any sudden shift to the downside could see the weekly pivot level of 111.80 become a potential target. Alternatively, should the Dollar hold firm, it may struggle to break the 114.00 level as this area has proved somewhat resilient over the past year.

Not all the Yen crosses appear weak

Ignoring the Dollar, let’s take a peek at the AUDJPY cross as there could be an opportunity to go long Yen after all.

Notice that we are approaching the top of a range on the daily and price action appears trapped in a sideways move. This range extends between the 84.50 and 81.00 levels, and with the price now touching 83.50 we’re not too far away.

AUDJPY – Daily

Has this pair found a ceiling?

The 84.50 level is crucial as it marks the most recent high. It was last challenged in June but was short-lived; only one day to be exact. This swift failed attempt suggests any further attempts may result in the same.

Also, the weakness of the previous day’s candles makes it appear the bulls are either fading or somewhat indecisive. This clue might be the turning point at which the pair gains some momentum in the opposite direction once again finding those support levels of 82.00/81.00.

We cannot get carried away though. As mentioned, the Japanese Yen is acting out of character as of late so we must not rule out the possibility of a further rally. Past 84.50 the next pocket of resistance appears to be at 85.50.

A quick glance at the hourly chart also highlights the willingness of the bulls to jump back in at any time. Look at how the price rebounded off the weekly pivot and followed through to the upside in the short-term.

AUDJPY – Hourly

Faith as a safe-haven restored?

Of course, many traders will still consider the Japanese Yen as a safer place to invest during times of turmoil. And I think Japan’s government will take action to help relieve concerns. Only yesterday Japan signed a free-trade deal with the EU which is an enormous partnership and will go a long way to squash some of those fears.

We will have to wait and see in the coming weeks if the currency can restore its prowess as a safe-haven asset.

Adam Taylor CFTe
GO Markets

This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.