The directionless action seems to continue in the Forex market. Aside from Wednesday’s stock-induced gyrations, this was as boring of a week as it could get in Fx. In fact, much of the volatility from the crypto and stocks crash didn’t spill over in currencies at all, and we generally stand where we began the week.

That being said, some interesting developments on the charts could set up potential trades, though more waiting is probably needed. We look at the USDJPY pair this week as a potentially attractive short play if we get some bearish breakdowns here in the coming trading days. Furthermore, a bearish turn in USDJPY will likely extend into bearish moves in other JPY pairs, with EURJPY, AUDJPY, and CADJPY in particular looking appealing from a short perspective 

The USDJPY technicals are at a critical juncture near the support here, which if/when broken, will likely result in an extension lower. We also briefly discussed this possibility in our last weekly analysis here.

As can be seen from the chart below, USDJPY is rising since the start of the year. It all began with vaccine optimism after the US election when several pharma companies reported success with developing a vaccine against COVID-19. But in April, the dollar turned lower again, and US Treasury yields started to consolidate, which corresponds to the larger correction down in USDJPY that we see on the chart below.

With risk-sentiment now at extreme levels, it would make sense for USDJPY to correct further lower. But then again, these are unusual times, and the bull markets may as well continue higher. That’s why it’s important to watch the key technical zone shown on the chart.

For example, if USDJPY breaks below this 108.50 support zone, it will be much more likely that it then falls toward the 200-day moving average (red line). But until that happens, it seems the price is stuck here in a tight 120-pip range that is roughly defined between 108.40-108.60 and 109.60-109.80.

The move below the 109.00 level and below the 55-day moving average (blue line) is an encouraging sign for the bears and has us inclined to look for short opportunities once a breakout below the support is confirmed.

Of course, it could still turn out that the price breaks either the support and resistance and then fails to continue in that direction. But waiting for the confirmation should still increase the probabilities for a successful trade and keep us safe from getting sucked into a choppy range.

• N/A; (long EURCHF not triggered yet)