Technical analysis of USD/JPY for October 13, 2014 Market Analysis Review

Fundamental overview:

USD/JPY is expected to consolidate with bearish bias after hitting near-one-month low of 107.26 this morning. Liquidity was thin as financial markets in Japan, U.S. and Canada are shut today for public holidays. USD/JPY is undermined by the flows to haven JPY and unwinding of JPY-funded carry trades amid increased risk aversion (VIX fear gauge rose 13.22% to 21.24, S&P 500 fell 1.15% to close at 1,906.13 Friday) as worries persist over slowing global economic growth. USD/JPY is also weighed by lower U.S. Treasury yields (10-year at 2.305% versus 2.327% late Thursday), buy-yen orders from Japan exporters and concern among some Federal Reserve officials about USD's strength. Fed's Evans said on Saturday that a stronger dollar is a headwind as it will limit the Federal Reserve's ability to meet its inflation mandate and will impede growth. But USD/JPY losses are tempered by the sell-yen orders from the Japanese importers, broadly firmer USD undertone (ICE spot dollar index last 85.72 versus 85.55 early Friday) on outperformance of the U.S. economy versus other major economies and smaller-than-expected 0.5% on-month drop in the U.S. September import price index (versus forecast -0.7%).

Technical comment:
Daily chart is negative-biased as MACD and stochastics are bearish, although latter at oversold, five-day moving average is below 15-day MA and is declining.

Trading recommendations:
The pair is trading below its pivot point. It is likely to trade in a lower range as far as it remains below its pivot point. Short position is recommended with the first target at 107. A break of this target will move the pair further downwards to 106.75. The pivot point stands at 107.65. In case the price moves in the opposite direction and bounces back from the support level, then it will move above its pivot point. It is likely to move further to the upside. In that scenario, a long position is recommended with the first target at 108.20 and the second target at 108.50.

Resistance levels:

108.20

108.50

108.80

Support levels:

107

106.75

106.45

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