USD/JPY seems to be at a critical inflection point. Earlier in the week the exchange rate tested and briefly broke below the 200-day moving average near 101.10 before snapping back aggressively. This is the first time since October/November of last year that this widely watched support level has been seen. The 2013 test of the moving average led to an important reversal in the rate with USD/JPY resuming its uptrend shortly after and trading to new 4-year highs by early January. This time around, not surprisingly, many market participants are looking for a repeat of last year. This very well could happen, but the odds don’t seem as good this time.
The 200-day moving average test last year was the first time the exchange rate had tested the widely watched support level since the bull market began in 2012. First time tests of the 200-day moving average in major uptrends usually prove successful. This time around we are far from confident about any sort of meaningful rebound as the circumstances have changed. Like this past fall, long USD/JPY remains one of the favored macro themes at the institutional level, but the exchange rate has effectively gone nowhere over the past year (while other pro-risk markets like the SPX have gone gangbusters). There is likely a lot of “stale” positioning among this important market segment. At what point does the big money “cry uncle”? We can’t help but wonder if a daily close below the 200-day moving average will be the technical trigger that forces a meaningful washout in USD/JPY after a long period of going nowhere. Traction over 103.00 is probably needed to signal a repeat of last year’s bullish episode.
USD/JPY Daily October 2012 to Present
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Kristian Kerr is DailyFX Sr. Currency Strategist
To contact Kristian, e-mail kkerr@fxcm.com. Follow him on Twitter @KKerrFX
