USDJPY Faces a Critical Support Zone as 110 Handle Now in Focus

Key Points:

• USDJPY flirting with a 1.10 handle breakdown.

• Net positioning towards shorts.

• Watch for a breakdown in the coming days.

The past week has been highly negative for the USDJPY as s sentiment swing, against the U.S. Dollar, has been in progress following some upset expectations around potential Fed rate hikes. Subsequently, the pair has plumbed new depths as a determined depreciation has sent the pair reeling towards the 1.10 handle. Subsequently, we review the major events of last week with and discuss some of the key points that are likely to impact the pair’s valuations in the week ahead.

The USDJPY slid sharply lower throughout most of last week as the pair was beset by a broadly negative greenback sentiment swing. The change in sentiment is largely due to shifting goal posts around future FOMC rate hikes with little in the way of hawkish rhetoric from the Fed last week. Subsequently, net greenback short positions are increasing which led to significant selling of the USDJPY late into the week’s session. This saw the pair take out some key support zones and enter the close sharply under pressure around the 110.61 mark.

The week ahead is likely to be critical for the pair with the key 110.00 support level looming and the bears waiting in the wings. The market’s key focus for the coming week is likely to be the Japanese CPI and U.S. Jobless Claims. In particular, the U.S. Unemployment Claims figures are likely to be closely watched by traders as they grapple with the Fed’s potential direction on rate hikes in the coming months. Most economists have the result coming in around the 245k mark but a miss could see some significant selling pressure on the pair and put the 110.00 handle in focus.

From a technical perspective, the pair’s recent collapse seems to suggest that a corrective phase is in progress and is yet to complete. The pair has plumbed some key lows but we are yet to see some sharp follow through selling. Regardless, the bears are firmly in control and the coming week is likely to open with plenty of short selling. Support is currently in place for the pair at 110.40, 109.08, and 107.62. Resistance exists on the upside at 111.87, 113.28, and 114.40.

Ultimately, it would appear that the bears aren’t going anywhere soon as we move into the Asian trading session. This is especially the case given the both technical and fundamental factors suggest that the decline is not yet over for the pair. Subsequently, keep a close watch in the coming days as a breach of the key 110.00 handle could signal a recommencement of the sharp falls.