USD/JPY — A Technical Look Beyond The ‘Flash Crash’

4 Jan 2019

On the aftermath of the Yen flash surge, it’s reasonable to have produced such a major correction away from an unjustified sub 105.00 level. However, as the dust settles, unlike the sense of victory by bulls on that Sterling bullish candle print, USD/JPY buyers are far from being in such position.

The losses experienced in the last 24 on a closing basis (down by over 120p) are well justified as the full-blown bullish rally in US bonds (lower US yields) extends, which when combined with lower equities, it will only exacerbate the pains in the pricing of the pair.

The key question we need to ask ourselves now is, what levels to the upside would start to justify re-engaging in topside sell-side action? You will notice in the chart above, I’ve drawn a couple of 100% projection targets, which due to the flash crash, were unequivocally broken. The first one at 108.82 under a time of more efficient markets, while the second target at 108.30 was taken out on the ‘flash’ event.

What this means is that on the way up, and amid a treacherous context for risk, I’d expect the the 108.85–30 to act as the first level of sticky resistance. Judging by where the US 30y bond yield stands, there is just simply no case to be made for a long-lasting recovery in the pair for now.