Earlier this month, the Japanese currency was significantly strengthening amid the instability in Greece and a nosedive of the Chinese stock markets. These factors pushed investors to sell risky assets against the Japanese currency. Growing demand for the yen added pressure on the USD/JPY pair. In few days the price dropped by more than 300 points. Weak PMI services index also affected the pair. Yesterday the pair reached the key support level, which is the lower border of the upward channel.
It is worth mentioning that China has taken steps to stabilize the stock markets, and today the key Chinese index gained back more than 6%. Greece was given the last chance, and this Sunday the three main creditors and the Government of Greece hold their next meeting, dubbed "the last chance for Greece". Today the pair USD/JPY bounced off the key support level and the lower border of the upward channel 120.60 and is heading up. The U.S. labor market statistics, released today, should be considered as well.
Support and resistance
Despite a downward movement for almost a month, the trend remains upward. The drop of more than 500 points is just a correction within the upward channel. In the future, the pair is likely to grow towards the target levels of 125.00, 125.70 and may test new local highs.
The U.S. dollar continues to strengthen in expectation of monetary tightening in the nearest future. After a surge in investor demand for the yen, the currency price will decline due to loose monetary policy in Japan. But do not discard the alternative scenario. If the uncertainty in Europe grows and Greece fails to reach a compromise in the nearest future, the exit from the risky assets and the demand for the yen will increase.
Support levels: 121.55, 121.30, 120.60, 120.00, 118.65, 117.10, 116.00.
Resistance Levels: 122.60, 123.00, 1123.60, 124.30, 125.00, 125.70, 126.25, 127.00, 127.60
Riskier recommendation is to open a long position from the current level 121.40 with take-profit at 125.00, 125.70 and stop-loss at 120.40.
Less risky recommendation is a pending order at the key support 120.60, with take-profit at 123.60, stop-loss at 119.70.