USD/JPY: Yen Melts Up, Snaps Back as Fear is in the Air to Start 2019

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USD/JPY, US Dollar Talking Points:

– An after-the-bell warning from Apple yesterday seemed to really kick off the risk aversion in the Asian session, with Yen-pairs seeing significant strength before a bounce began to show. The bounces have been rather vigorous, with USD/JPY retracing more than 250 pips of the earlier sell-off, and EUR/JPY more than 300 pips off the lows.

– The big question is one of continuation and given the snap back after yesterday’s melt-up in the Yen, traders should continue to move forward with caution, looking for resistance in order to sell at lower-highs so that if the bounce does continue, capital preservation remains a priority. Many traders will approach such scenarios with a greed-first mentality when in-fact fear should be at the forefront of those trading decisions.

– DailyFX Forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

Japanese Yen Experiences Significant Strength After Apple Profit Warning

Yesterday saw the fireworks continue in the currency market as the page has turned into 2019. An after-the-bell warning from Apple seemed to prod the risk aversion theme into a higher gear, leading to some significant strength in Yen-pairs. EUR/JPY put in a test below the 120.00 psychological level, GBP/JPY dove all the way down to 132.00, more than 1300 pips-below where prices were just a month ago, and even USD/JPY plummeted to fresh lows, testing below the 105.00 psychological level before a bounce began to show.

From the one-minute chart, traders can see price action during one-minute bars that spanned more than 100 pips, illustrating the intensity of the move as it was coming in after the US equity close. This plunge was followed by a corresponding bounce that’s brought prices up by more than 250 pips. In the past, such a reaction would commonly be attributed to intervention from the Japanese Finance Ministry; and that may be what was seen here last night.

USD/JPY 30-Minute Price Chart: 470 Pips Down, 300 Pip Snap Back

USD/JPY: Yen Melts Up, Snaps Back as Fear is in the Air to Start 2019

The big question is whether this, or whatever created this bounce, can turn the tides of what’s been taking place in the Yen. USD/JPY has moved down by almost 1,000 pips since I started looking at the short side of the pair a few weeks ago; and EUR/JPY as my Top Trade for 2019 has already hit its first target. The prospect of selling and ‘hoping’ that the move continues may be an attractive idea, but traders should approach such situations with more fear than greed, as the snap back that showed last night very well may continue.

So items like risk and trade management remain of importance, and one of the more proactive ways for traders to address such market scenarios could be to spot potential resistance levels, wait for prices to test those levels, and if sellers show up, look for controlled-risk entries so that if it doesn’t work, capital preservation is in order and the trader can simply try to take another swing at another resistance level.

Below, I’ve identified two potential resistance zones in USD/JPY that can remain of interest in the near-term. For traders that do want to remain aggressive on this scenario, a third area of interest has been added in the zone between 107.89-108.00.

USD/JPY Four-Hour Price Chart

USD/JPY: Yen Melts Up, Snaps Back as Fear is in the Air to Start 2019

Given the dynamics in the Yen and USD/JPY, the US Dollar has been fairly tame. Prices have softened after yesterday’s bounce from support, and that pullback came in for a re-test of the 96.47 Fibonacci level, which is the 23.6% retracement of the 2011-2017 major move in the Greenback. This can keep bullish strategies in the US Dollar as attractive, particularly against commodity currencies such as AUD/USD and NZD/USD, as these pairs have continued to show very clear themes of USD-strength despite the fact that DXY has been rather non-directional over the past month-and-change.

US Dollar Four-Hour Price Chart

USD/JPY: Yen Melts Up, Snaps Back as Fear is in the Air to Start 2019

AUD/USD Spills to Fresh Lows, Snaps Back

That risk aversion was evident in Aussie yesterday as AUD/USD tested below the .7000 level for the first time since 2016. The selling didn’t stop there, however, as the pair dove-lower following the US equity close as that ‘melt up’ in the Yen was taking place. After putting in a quick test below the .6750 psychological level, prices have ripped higher by more than 200 pips and are fast-approaching that .7000 spot. The big question is whether sellers show back up at this point to offer lower-high resistance, which can keep the door open for bearish strategies in the pair.

AUD/USD Four-Hour Price Chart

USD/JPY: Yen Melts Up, Snaps Back as Fear is in the Air to Start 2019

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q4 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

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