’Animal Spirits’ Rekindled in USD/JPY?

Talking Points

• Key cyclical turning point next week
• The 101.35 level remains a key pivot

Unfamiliar with Gann Square Root Relationships? Learn more about them HERE.

USD/JPY found support at the beginning of the month near the 4th square root relationship of the year’s high in the 101.35 area. The recovery from there has been steady but has made very little real upside progress as the exchange rate remains in the middle of its 3-month range. Despite this lack of progress on the upside it looks like ‘animal spirits’ have been re-kindled as sentiment towards the Yen as measured by the Daily Sentiment Index (DSI) fell to just 13% bulls earlier this week. Usually such extremes in sentiment are reserved for powerful persistent trends not minor recoveries like the one we have seen in the exchange rate over the past few weeks. Such conviction and faith that a new leg higher is underway despite modest gains suggests that USD/JPY is vulnerable to a downside break this month. The first half of next week looks significant from a cyclical perspective and a high in USD/JPY is favored around this time. A break under 101.35 after this turn window should set off an impulsive move lower in the pair.

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USD/JPY Daily Chart: May 1, 2014

Charts Created using Marketscope – Prepared by Kristian Kerr

Key Event Risk in Coming Sessions:

LEVELS TO WATCH

Resistance: 102.75 (Gann), 103.10 (Fibonacci)

Support: 102.05 (Fibonacci), 101.35 (Gann)

Strategy: Sell USD/JPY

Entry: Sell USD/JPY on a 101.30 stop

Stop: 1-day close above 102.00

Target: 100.10

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail [email protected]. Follow me on Twitter at@KKerrFX.