How the 20 period SMA Factors into the USD/JPY Range
The USD/JPY continues to tighten its daily trading range and as this consolidation occurs, the flattering 34EMA Wave could be setting up a momentum entry opportunity that could reveal the intention of the pair.
The USD/JPY has been trading sideways between 82.23 and the support of the 20 period SMA on the daily time frame. The bottom of the range - the 20 period SMA - is where price action is testing the bulls willingness to support the dollar versus the yen.
From a psychological standpoint, a sideways market essentially reflects a lack of opinion, interest, and/or uncertainty. Don’t confuse uncertainty with confusion - the element of fear in confusion increases volatility while uncertainty just keeps traders and investors waiting for a reason to do something.
The USD/JPY has been my risk barometer until the March earthquake and subsequent intervention. At that point I had to abandon that analysis, but I will continue to watch for the yen to “normalize” and once-again reflect risk appetite and risk aversion.
For now, today’s strength in the yen could push the pair lower as the U.S. Dollar has lost footing at 76.00. My take on the greenbacks overall weakness comes from the weekly chart retracement into the 34EMA Wave. The weekly is still very much in a downtrend so the rally is only a correction while the rally on the daily chart actually triggered a reversal of the downtrend. The weekly of the USD/JPY shows that this pair is trickling lower but has - over the course of the last six months - begun to lose some of the bearish momentum and begun to trade a little more sideways but still with a bearish sentiment.
Past performance is not indicative of future results
The weekly USD/JPY has begun to show tha the yen's dominance over the dollar has decelerated.
The intraday trends across the 15, 30, and 60-minute charts show “four to six o’clock” downtrends, while the 240-minute chart has recently rolled over through the support of what was an uptrending 34EMA Wave. The tight sideways range of the daily tells me it’s better to focus on the short-term intraday time frames due to the narrow trading range.
The 20 period SMA on the daily could trigger a breakdown on the daily but until it is broken, it must be viewed as the floor. Swing entries on the 30-minute time frames are my preference since the 30 has (currently) the best Wave Clarity of the five, 15, or 30-minute time frames - these are the three that I would focus on because of the daily’s tight range.
Notice that Thursday’s sharp breakdown was really not a healthy trend but rather a “cliff dive”.
Past performance is not indicative of future results
The 30-minute USD/JPY has a smooth 34EMA Wave with a clear "four to six o'clock" angle, it is established because of the large "cliff dive" but remains untested in terms of a reliable downtrend. Therefore continuation is questionable.
In many ways, exhaustion at the 34EMA Wave and a resumption of the bearish sentiment and momentum is needed to confirm a downtrend otherwise Thursday’s sell-off is simply a “too far, too fast” move.
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