Analyzing The JPY Crosses

The JPY is oft seen as the recent barometer for risk aversion. Historically speaking the Bank of Japan (BOJ) prefers a weak JPY as Japan relies heavily on exports to support their GDP growth. The BOJ is able to manipulate their currency by maintaining relatively low interest rates. This turns the JPY into a funding currency whereby traders will borrow in JPY and invest the borrowed funds into an economy yielding a greater rate of interest, also known as the carry trade. However, in these remarkable economic times many countries such as the U.S are also maintaining extremely low interest rates.


We start with this cross as this is one of the most volatile pairs to trade when you look as the average daily pip movement between highs and lows. Major MA’s clearly favor a strong JPY as the 200 MA sits above the 100 MA and the 100 MA above the 50 MA. However, there is a subtle Support trend line starting to build and price is also beginning to hug the 50 MA. It would seem that a break below 1.32, or GBP Support would have this pair testing recent lows near 1.29. However, a break north above 1.37, which would entail taking out the 50 and 100 MA’s may have the GBP testing the 200 day MA. With trend line Support holding since May it would seem that price may favor a re-test of trend line Resistance, but higher than average volatility can make things appear very different after two days of price action.


This pair has been trading the classic range since mid May. There have been a few top side and bottom side breaches. With the JPY looking vulnerable against the GBP, based on the analysis above, and with the JPY approaching Resistance on this pair some Support and Resistance traders will be looking to go long the EUR on a bounce off EUR Support near 1.0950. A close back above the 50 MA may give the EUR the lift it needs to head back top side. In simple terms though you want to keep an eye on range Support and Resistance lines to profit from a meaningful break up or down.


Unlike the EUR which has been trading the range, and the GBP which is showing mild strength versus the JPY, the USD is looking extremely weak versus the Japanese currency, over the same period of time. Trend line Support and Resistance clearly favors JPY appreciation. The 100 MA is set to move below the 200 MA which will align the major moving averages in an order consistent with continued falling prices. The one hope left for the USD is strong JPY Resistance on a close below an 85 handle. The longer 85 holds as strong Resistance the easier it will be for the USD to break trend line Resistance. However, if 85 is taken out prior to that we may see very quick price action cascading lower and in which case an 81 handle is very easily with in grasp. As mentioned before though, the longer 85 holds Resistance for the JPY the more likely we are to see a spike up on a breach of trend line Resistance, possibly towards 89.

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