Market Sentiment: Bearish
Key Takeaways:
- USD/JPY holds off long term trendline support
- A classic inside bar breakout trade setup emerges on the daily chart
- Japan’s machinery orders increase unexpectedly
USD/JPY extended upside movement on Monday after closing above the major trendline support last week. The pair is expected to find huge support around the current levels. The sentiment has turned to bearish due to Lower Low (LL) on the daily chart.
Technical Analysis
As of this writing, the pair is being traded near 101.56. A support can be noted around the lower trendline as demonstrated in the following chart. A break and daily closing below the lower trendline channel could push the pair into negative territory, opening doors for a correction below the 100.00 support area.
On the upside, the pair is expected to face a hurdle near 102.00, the confluence of 38.2% fib level and psychological number ahead of the upper trendline channel as shown in the above chart. A daily closing above the upper trendline could incite a renewed buying interest, opening doors for 103.32.
Japan Machinery Orders
The machinery orders in Japan increased surprisingly to 16.1% in April as compared to 10.8% in the same month of the year before, up beating the average forecast of just 4.2% increase, a report by the Cabinet Office of Japan revealed today. Generally speaking, higher machinery orders are considered positive for the economy and bearish for USD/JPY.
Trade Ideas
USD/JPY formed a classic inside bar breakout trader setup on Friday. Traders tend to place buy limit and sell stop orders to take advantage from inside bar setups. Considering the recent surprise increase in the Japan’s Gross Domestic Product (GDP), the pair might come under renewed selling pressure threatening the 100.00 handle.
Prepared by Usman Ahmed, Chief Currency Strategist at Capital Trust Markets
