Signs of Yen Weakness: Can Traders Trust the Breakout?

With the month of August around the corner, traders usually would prepare themselves for slower price movements as large parts of the world take holiday. But will the same pattern occur this year too?

A couple of aspects could certainly differ compared to previous August months:

  1. With the US Dollar at a pivotal decision spot, the summer has the potential to heat up more than usual in terms of price action and volatility. On Wednesday, the US figures on the GDP easily beat the expected numbers: +4 versus +3.1, which promises a potential USD rally. However the number one event of this week is not GDP, ADP, nor FOMC but the NFP. Positive figures could confirm that USD rally continuation.
  2. Price action has been relatively quiet and slower paced during the 2nd quarter and during July so price and the market have certainly not overextended itself.
  3. The USDJPY was one of the currency pairs that surprised the markets this week with its 150+ pips gain. The USD strength however does not seem to explain the entire story as multiple Yen pairs started to weaken as well. Could a Yen weakness trend be close to a revival and continue its downtrend as in 2013?

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Besides the bullish daily candle on the USDJPY, other Yen pairs are showing comparable massive bullish candles and breakouts. The GBPJPY for instance has a daily candle towering above the resistance trend lines (orange and purple) after a bounce off of the support trend line (green). Other pairs like the EURJPY, CHFJPY, NZDJPY, and CHFJPY have similar daily candles.

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The Yen weakness trend certainly has some interesting characteristics when reviewing the GBPJPY and USDJPY but also have their problematic points. Let us review some of these.


When reviewing the daily chart on the GBPJPY there are a couple of elements that place a breakout into a troublesome category:

  1. Price action has not shown clear upside momentum and the overall uptrend has been choppy at best.
  2. The ATR (average true range) values are the lowest since the summer of 2012 when the uptrend of the GBPJPY and other Yen pairs started. The volatility is an important component of a breakout as it indicates whether price has sufficient momentum to continue in the direction of the break.

An interesting 2nd half of 2014 could be lurking around the corner but more confirmation is needed. Whether US Dollar will start a trend sometime soon remains to be seen but for the moment, a Yen trend does not seem likely.

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Happy Trading!


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