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#1 18-01-2021 09:50:49

Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 3069

USD/JPY: the pivotal 100 level

USD/JPY: the pivotal 100 level

The USD/JPY pair is once again flirting with 100. After appearing to have left the pivot level, it has been falling steadily over the past four years, recently reaching as low as 101.18 in March of last year when stock markets around the world collapsed.

In fact, the USD/JPY is unique in the forex. It expresses the differences between two safe-haven currencies: the USD and the JPY. Specifically, when things go wrong in the world, the JPY strengthens and the USD/JPY falls. Over the past few years, think of all the friction between the S and China in trading, the North Korean missile launches, etc. There is always something bad going on in the world and the market is influenced by it.

However, when things go from bad to worse, the USD, the world reserve currency, goes up. When there is no more USD liquidity, as was the case early last year, market players turn their attention to the USD. The USD/JPY therefore leapt out of initial fears of a pandemic and then tracked most of this movement in the 9 months that followed.

The Bank of Japan is likely to express its concerns at the 100 level.

Round figures generally have a psychological role for both traders and policy makers. In this case, 100 is a huge level for the USD/JPY pair.

The first time the pair went above this level after the Bank of Japan launched the quantitative easing program several years ago, the event left its mark on the market. The pair formed an ascending triangle, building up the energy to break out at a higher level, and when it crossed this level it triggered numerous stops.

Coincidentally or not, the current "meltdown" we are seeing in the pair resembles this triangle. Specifically, the market is unable to break the series of lower vertices while finding support in a horizontal zone. This is the definition of a descending triangle - the one that forms at the 100 pivot.

Another interesting thing is that the yen's strength against the dollar comes at a time when the Nikkei 225 index is outperforming. In other words, a stronger currency and an even stronger equity market can be a cause for concern for the Bank of Japan if the USD/JPY falls below 100.

The battle at the 100 level for the USD/JPY will be one of the most interesting themes to follow in 2021. Expect stops to be lined up below and price action to accelerate if the pair were to fall that far.

"Anything worth having is worth going for - all the way." - J.R. Ewing



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