Trading opportunities on the currency pair: The price has stalled at the upper boundary of the C-C channel or trend line. Large speculators have been closing their long positions as the price approaches the trend line. According to the latest COT report, major players are doubtful of a breakout here.

Typically, from the trend line, one should be looking to sell dollars with a stop level above 113.05 (depending on the level of risk as the individual trader sees it). The fall to 111 should be seen as a correctional phase for the growth from 108.13 to 113.05.

Should the rate fall below 110, the next support for buyers will be at 109.25; the lower boundary of the D-D channel. This will open the way to 1.06.00 (by the 12^th of June).

Should the trend line be broken through, there’s no need to hurry to buy dollars, as the breakout could be false. If we don’t see any sharp rebounds afterwards (if a major seller doesn’t enter the market), then we can expect the price to restore to 115.50 from the 10^th of March. On the hourly chart, there are some bearish divergences on the AC and Stochastic indicators; a bearish signal.

Background:

The previous idea on this currency pair was published on 06/11/17. The dollar has been in a correctional phase since the beginning of January. The price has corrected by 38.2% to 112.05 from the growth from 101.19 to 118.66. At the time of publishing this review, the US dollar is trading at 112.55 JPY.

It was expected that the dollar would fall to the upper boundary of the A-A channel (110.40/50) by the 8^thof March. After that, cycles were indicative of a restorative phase for the dollar up to 113.45 JPY. This possibility disappeared on the 10^th of March when the daily candlestick closed above 114.50. As the consolidation phase was delayed, a phase of decline set in instead of one of growth. By the 27^th of March, the dollar had fallen to 110.11 against the Yen and to 108.13 by the 14^th of April.

Current situation:

As the situation with North Korea worsens, demand for safe haven assets has increased. The Yen has appreciate against the dollar to 108.13, and gold to 1295.61. When tensions with North Korea abated and Emmanuel Macron won the first round of the French presidential election, traders started to get rid of their yen. In the space of 14 trading days, the Japanese currency has grown by 450 pips to 112.63.

COT report:

The new daily report from the Commodity Futures Trading Commission (CFTC) was presented on Friday the 5^th of May 2017. The COT report contains an account of open positions by traders from the 25^th of April to the 3^rd of May 2017 inclusive.

Large speculators (Non-commercial): Last week, long positions fell by 11,112 to 37,855 contracts and short positions fell by 8,372 to 64,420 contracts. Net-short positions have increased by 2,741 to 26,565 contracts.

Small speculators (Non-reportable positions): Long positions have fallen by 2,500 to 26,826 contracts. Short positions have increased by 1,999 to 38,368 contracts. Net-short positions have increased by 4,500 to 11,542 contracts.

Hedgers (Commercial): This group of speculators has opened positions against large speculators. Last week, they increased their long positions by 3,102 to 148,497 contracts. Short positions fell by 4,138 to 110,390 contracts. Open interest has fallen by 7,137 to 239,834 contracts.

Conclusion: The latest COT report omits 3 trading days. However, even among the days included, it’s clear to see that the situation is ambiguous for large speculators. Open interest has fallen. As the price approaches the trend line, buyers are cashing in on their long positions and short positions are being closed at their stop levels. No new positions are being opened. Small speculators have been working towards a bullish correction.

Weekly chart. Source: TradingView

My previous idea didn’t come to fruition as before the Yen strengthened, the daily candlestick closed above 114.50. This growth failed to continue. From 115.50 level, the dollar depreciated to 108.13, forming the C-C channel as a result.

After rebounding from the lower line of this channel by 61.8%, the dollar closed up against the Yen for three weeks in a row. As already stated above, this change in direction on the USD/JPY pair was brought about by reduced tensions surrounding North Korea as well as Emmanuel Macron’s victory in the first round of the French presidential election.

I’ve shown the situation on the daily chart below, but you’ll need the above weekly chart to provide some context. The price has stopped at the upper boundary of the C-C channel or trend line. Large speculators have been closing their long positions as the price approaches the trend line. The latest COT report doesn’t contain any data for the last 3 days, but going by the data that we have, large speculators seem to be doubtful of a breakout of the trend line.

Daily chart. Source: TradingView

The dollar appreciated against the Yen after strong showings from the ADP and NFP reports, although it lost ground against other major currencies. Such behaviour by traders was brought about by the upcoming second round of the French presidential election on Sunday.

From the trend line, we should expect the sale of dollars with stops above 113.05. The slide to 111 should be seen as a correctional movement to the growth from 108.13 to 113.05. Take a look at how the dollar’s depreciation from 115.50 started on the 10^th of March. The current situation is similar. It’s no foregone conclusion that it will work out now as it did in March, but there are certainly parallels to be drawn.

Should the rate fall below 110 JPY, the next support for buyers will be at 109.25, which represents the lower boundary of the D-D channel. After this, the way to 106.00 will be open (by the 12^th of June).

Should there be a breakout of the trend line, there’s no need to rush to buy dollars, as the breakout could be false. If we don’t see any sharp rebounds to follow, we can expect the price to restore to its 10^th of March level of 115.50.

Emmanuel Macron is now the President-elect of France. The dollar is currently trading down in Asia. It’s better not to undertake anything new on Monday. Just keep an eye on the price’s behaviour around 113. If a major seller doesn’t appear around the trend line, don’t sell your dollars. Open short positions only under the right conditions, when signals can be confirmed. On the hourly timeframe, the AC and Stochastic indicators are showing some bearish divergences. Sales may increase.