US Dollar trades near range lows versus the Japanese Yen
A look at real FX volume indicator highlights key levels worth watching
We’re waiting for a drop towards bigger support
The Dollar is trading in a tiny range versus the Japanese Yen. Is it a good time to buy? These are the price levels we’re watching for potential trades.
USDJPY Coiling up For Next Big Move as Low Volume and Volatility Warn of Complacency
The USDJPY currently trades towards the bottom of its tiny trading range. In order to gauge whether a breakdown is possible we take a look at the most significant levels of trader interest—prices at which volume was highest.
Spikes in Volume Tell us Where Traders are Most Likely to Defend Support and Resistance
Our data shows that the biggest volume spikes in the past three months
occurred when the USDJPY traded to ¥100.80, 101.70, 102.15, 102.60, and
103.00. Why does this matter?
Put simply, these are the levels which traders have traded most
aggressively as the pair sticks to its narrow range. If there was
significant selling interest as the pair pulled back from ¥102.15, for
example, we might expect many of the same traders to sell once more if
price approaches that level.
It bears mention that there was no such spike in volume as the USDJPY
traded into multi-month lows near ¥101.20. We have to go back to the May
low at ¥100.80 to see a more significant jump in trading volume. All
the while, there are a number of important resistance levels just above
current price.
A closer look at what traders are holding shows that the vast majority
remain long the USDJPY. In fact our Retail FX Positioning chart (below)
shows that current levels of positioning have coincided with Dollar
bounces on a year-to-date basis. Does that mean we might buy the USDJPY
at current levels?
Retail FX Positions Consistent with Important Turns in USDJPY
One-sided positions suggest the pair is likely to trade higher, but
potential reward on the trade looks limited in comparison to potential
risk. According to our volume data, big support is at ¥100.80—currently
90 points from market price at 101.70. Important resistance starts at
¥102.15 which would put our first price target on a long position a mere
45 points away.
With twice as much risk as potential reward (90 versus 45), it seems
excessively risky to buy USDJPY at current levels. Instead we might look
to buy if price dips back towards the 100.80 lows with a target for
range highs.
The long-term consolidation pattern suggests that the USDJPY might break
significant price levels and could be worth a buy. Yet until that
happens we’ll look for range trading opportunities.