The recent BoJ action has caused the JPY to move sharply – what do technicals show going forward?

Elliott Wave analysis view by Grega Horvat:

USDJPY has seen a strong reversal over the last few months, failing to break decisively above 150 which appears to be an important and strong resistance. Not only technical, but there were plenty of other factors that are causing a sharp turn on the pair going into the year end. Firstly, there was BoJ interventions back in September and October, and then we also had US inflation that started to come down, so lower US yields helped JPY to gain as dollar hits resistance against most of its rivals. Potential lower FEDs peak projections can keep US yields limited for a while. So far, pair lost almost 2000 points from it’s latest peak, but this move can easily extend further to the downside, into JPY’s favour, after recent adjustment of yields curve control by BoJ. Some speculators believe that this is the first step towards major policy change from easing to tightening, going into 2023. It may a lot depend on the JPY inflation that is coming higher while in US its coming down, so clearly BoJ is aware of the situation and may want to slow it down before inflation in Japan goes to high.

From an Elliott Wave perspective we see a turn down from a big 150/152 level in five waves; a move that is breaking the trendline support with an impulsive price action. As such, more weakness is expected since we know that impulses define the direction or a change in trend. But nothing moves in straight line, so there can be some rally coming, ideally from 126-130 support zone. Nice resistance for a temporary A-B-C rally would be near 138-140, but these levels can be adjust to lower if current leg will extend further from here, but the idea is “more weakness after next rally”.

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Grega Horvat

Technical Analysis view by Blake Morrow:

The USDJPY broke the 200dma following the actions of the Bank of Japan this week on December 20th, 2002. However, the breakdown did find horizontal support at the spike lows from the beginning of August. The daily RSI was divergent, but we’d expect any move back to the descending trend line and/or near the 200dma would offer traders fresh levels for short positions. The breakdown of the horizontal support and the 130.00 level could open a move to the 127.27 level in fairly short order as this is the 50% retracement of the January 2021 lows to the October 2022 highs.

Blake Morrow

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