The 107.00 level in USDJPY is building up

There seems to be a lot of noise building about the 107 level in USDJPY.

  • Firstly, there’s a barrier noted there and it’s said to be quite big.
  • Secondly, there’s large bids ahead of the level touted from Japanese insurers and other financials. This was something that we noted qute a while back when the 110 barrier was in place. Alongside the bids, there’s also said to be sizeable stops building if it breaks.
  • Thirdly, traders have noted that are some short gamma positions that could be forced to cover if 107 does break. That could add to the stop situation
  • Fourthly, there’s been an increase in short-term option buying in 107 JPY calls. 1 week option vols have recently spiked up to the highest since last Sep at around 11.60/70. They had been as low as the 4’s twoards the end of Dec

To put this into simple trading terms, there’s likely to be a stout defence of 107 but we could see an accelerated move if it breaks. Shorts may want to consider taking some money off the table into a first test of the 107 level. Experience leads me to think that we’ll see the protection of 107 stepping in around 107.20-107.10 on a first attempt. That will make 107 a big boundary. What happens in any break is less certain. We don’t know exactly where those stops will be sitting (again, my experience says to look for stops around or just under 106.90/95), nor where these short gammer traders will step in and start selling. They may be part of the stops sitting there too.

Depending on how the price action looks if we do get a move down there, I may look at a big fgure long starting in that 107.10/20 area, and down to the big figure. If it holds, I’ll be looking to get at least half away on any quick bounce and nurse the rest. Ordinarily I’d look to put a stop under somewhere like 106.80 but given that a break might quite big, I might look to do a quick reverse into a short if 107 goes. I’ll have to play it as it goes.

Technically, even with the break of 108.00, there are still some strands of hope for bulls, and that’s the Sep 2017 low around 107.30 and the 61.8 fib of the Aug 2016 swing at 106.84.

USDJPY daily chart

USDJPY daily chart

The 107.30/45 area is worth noting if you also look back at the action around there between Apr & Jul 2016. That’s could help cement the bottoming action we’re seeing right now with the low at 107.43.

Lots to consider but the long and short is that the level is attracting interest and focus, and that in itself can magnify moves that may happen there.

Ryan Littlestone

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