USD/JPY: In consolidating markets, prices should revert towards the mean
- Possible double-top on the daily chart at 100.00, and this is the key topside level.
- Short-term support is at 97.00, with China reportedly protecting a dnt option structure.
- Vital support is at the potential neckline which is at 95.80, where the bullish trend-line and 55-day SMA also currently sit.
- When markets are consolidating, prices should revert toward the mean (100-period MA) so either prices go sideways allowing the MA to catch up or prices fall to meet the line (currently just below 93.00).
- Short-term charts are currently in modest down-trend but much will depend on how aggressively China wants to defend this 97.00 level.
Conclusion: I don’t like betting against China but I also think that we are in for a period of extended consolidation. The big levels to watch are 95.80, 97.00, and 100.00; I think we should consider positioning on the approach to these levels with tight stops below.
Trade: I’ve taken a small USD/JPY long position at 97.30 with a 50 pip stop. If 97.00 breaks then I will look to sell rallies for a test of 95.80.