Is the USDJPY starting a longer term break lower?

Is the USDJPY starting a longer term break lower?

….or is it just a fantasy?

The USDJPY moved to the lowest level since November 2016 in March – reaching a low at 104.60.  However, the price rebounded off the month lows and is closing nearer the highs for the month. 

Looking at the daily chart above, the low for the month fell below a lower trend line, but failed. That led to a run higher.

The last two trading days had the price move above a topside trend line, but that break also failed.  On Thursday, the price closed back lower and below that topside trend line at 106.75. That is more bearish.

Keeping things simple, the topside trend line and the lower trend line will be key into the new month.  Move above, is more bullish.  Stay below the higher trend line and move below the lower trend line, and the bears are more in control. 

Taking a broader look as the monthly chart

Taking a broader look at the monthly chart below, the red boxes in the chart represent 12 month periods AND the narrowest low to high trading range over that 12 month period.   As such, each of the boxes are the same size.  

Back in 2011 and 2012, the market non-trended for over 2 years as the low was being formed.  There was an attempt to go lower at the end of 2011, but the break failed and the price consolidated into the end of 2012. The price eventually broke higher and started the trend higher.

At the end of 2013 and into 2014, there was another 12 month period where the price consolidated in a similar range.  Then toward the 2nd half of 2014, the price broke higher and again trended.

In 2015, the price non trended and that eventually led to a trend move lower. Note, the range was larger than other 12 month ranges, and it took to the 14th month to start the next trend move lower, but overall, the pattern was consistent. 

Finally in 2017 (see the blue box), the price non-trended into January 2018. The range for the period was actually more narrow than prior recent 12 month non-trending periods.  In other words, the market was even less volatile from a historical perspective. 

That should help usher the pair into the next trend, and looking at the price action, it is bearish. 


The last two months have seen the price move lower and below the lowest low from 2017 at 107.30. In fact, the high for the month of March was at 107.286 – a pip or so below the 2017 low price. What was the floor in 2017 became the ceiling in March 2018.  I have to respect the “markets” price action and bias. 

So for April, stay below that level keeps the bears in firm control.  If it does, we could see the restart of a multiple month run lower.  

If the patterns from the past are similar, that could take the price below the 50% retracement at 100.58, below the 100 month MA at 99.34, and even much lower than that. 

It seems crazy from a fundamental perspective, but if it progresses, the story line will develop over time (I would think the 100.00 parity area would be a very tough nut to crack though).

Could 2018 be like 2011/2012?

So what is the risk?

The risk is that 2018 is more like 2011/2012. In 2012, there was a break lower that failed. The market consolidated for another year, before breaking higher.  We could do that and trade back toward 115 over time.  The range trading continues.  

Another possibility is the break lower seen over the last two months,  fails and the price reverses, and starts a much stronger trend higher (above 115).  Some traders might think that is more likely fundamentally with the Fed tightening and a stronger US economy.  

What would something like that look like?

If that were to happen, look for the following steps:

  • A move above the topside trend line on the daily chart
  • A move above the 107.30 low from 2017. That is a key level to get above.
  • A move above the 108.12 swing low from April 2017, and then the swing low from August 2017 at 108.24.
  • Finally, the broken trend line will come in around 108.67 (see red circles). 

A bullish progression like that will have traders thinking more toward a move to 115.00 and potentially even higher. 


Technically, the USDJPY is more bearish after trading in a very narrow trading range in 2017 and breaking to new lows (a trend line was broken too).  

However, the break lower – although it made new lows in February and March – has to get the momentum going to keep the sellers engaged, and prevent the dip buyers from taking back control.

What would keep the sellers in firm control in the new month?

I like staying below the 107.30 level. That level was the low from 2017 and the high from March.  Stay below and the sellers are winning. The buyers are not.  If that happens and we get a middling 300 pips range for the month, we could target 103.50. A larger range and we are getting closer to the parity level. 

If the price starts heading back above 107.30, the story line starts to look different. The 108.12, 108.24, and 108.67 become the targets. 

The pair is bearish now. The technicals and price action are telling us that.  

However, let the price action and the technicals complete the story.  There could be a surprise ending (a move back above 107.30) that can put a twist in the story line in April.  Be aware. Be prepared. 

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