USD/JPY: Where To Next Following The Japanese Yen Flash Crash

Published date: 07/01/2019

Good morning traders and Happy New year!

For many today will be the first day back at work after the Christmas holidays which also means most retail, hedge fund, bank and institutional traders will all be back at their desks, ready to trade, resulting in more volatility in the markets for us to take advantage off. Though notoriously for retail trader's the Christmas period is usually very quiet, we have seen some crazy moves in the market in the past week. This is mainly resulting from what many are calling "The Flash Crash" that we witnessed with the Japanese Yen pairs. The shock move we saw in the USD/JPY market last Thursday saw a drop of roughly 400 PIPs in one day in what was already a very bearish market as the pair has already fallen 300 PIPs in the few days prior. Overall this market dropped within the 600 PIP region in what is meant to be a "quiet" week. 

My last update on this pair in 2018 was following up on a short trade I had given a few weeks earlier at the highs of 114.00. This short trade was explained within "Todays Technicals" section of this site and broken down and explained in further detail within our member's zone. Having broken the long-term ascending daily trendline around the 113.50 region, we were holding our short trade and heading towards taking out the next target and the next support zone of 112.00. What happened next was unprecedented and had anyone continued to hold their short position through to the "Flash Crash"  it would have proven very fruitful indeed but, no one would have foreseen such an event.

Following the aftermath of this crash, we saw a retrace of around 400 PIPs to trade around the weekly resistance level of 108.00 which we then managed to break through thanks to Fridays NFP results and added movement in the market. With such a large move it can be hard to analyse a pair or figure out the next move. On my chart attached, we can see the bigger picture. Having rejected the monthly key resistance of 114.00 and then breaking the all-important trendline, this pair really has not looked back once. Once a trendline has been broken like this, we look for certain support levels to be met before eventually testing the first point of the trendline. In my chart, we can see with the flash crash and its crazy momentum, we have managed to bypass all off the support levels and tap that 104.65 level which is the point at where the long-term uptrend started back in March 2018. The last time this market was trading around this level was in November 2016 and has now proved to be strong enough support and hold price even with a flash crash but the trendline break technical analysis has now been completed.

So what now? On the back of the week this pair saw its biggest move since 2016 and the fact we had the release of the non-farm payroll figures from the US last Friday, I would let the dust settle on this pair today. We have just managed to break back above toe 108.00 level and it will be interesting to see how this pair reacts here and whether this support level can hold. Long term I see this pair managing to retrace further to 112.000 where we then may see the next leg down back to the lows created last week at 104.65. Short term, we do have a 4-Hour trendline that will come into play and act as resistance around the 109.000 region. This area will be key as to whether this pair can push higher to meet the monthly resistance at 110.00 or reject the trendline and head south. Traders will be looking for any sign of weakness on this pair given last weeks activity, so should this trendline be too tough to break, the next wave of short sellers could step into the market...



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