USD/JPY Technical Analysis: How Strong Are Resistance Levels?

The force index is considered a next generation technical indicator. As the name suggests, it measures the force behind a move. In other words, forex traders will get a better idea behind the strength of bullish or bearish pressures which are driving price action. The indicator consist of three components (directional change of the price, the degree of the change and the trading volume). This creates an oscillator which in conjunction with other aspects of technical analysis provides a good indicator for potential changes in the direction of price action. It subtracts the previous day closing price from today’s closing price and multiplies it by the volume. Strong moves are supported by volume and create the most accurate trading signals.

An extended contraction in the Force Index below the 0 center line is further expected to invite new net sell orders in the USD/JPY. The loss in bullish momentum as price action is approaching the resistance zone, coupled with the strong rally over the past two weeks which spanned roughly 400 pips, makes this currency pair vulnerable to a price action reversal. This can be partially attributed to profit taking. Economic data should also be carefully monitored as it could provide the trigger for the next move in either direction. Japanese data released this morning showed further weakness in machine orders for July, but at a smaller than expected pace, while they increased on a year-over-year basis.

What is a Resistance Zone?

A resistance zone is a price range where bullish momentum is receding and bearish momentum is advancing. They can identify areas where price action has a chance to reverse to the downside and a resistance zone offers a more reliable technical snapshot than a single price point such as an intra-day high.

Forex traders should be prepared for a sell-off in the USD/JPY as the 61.8 Fibonacci Retracement Fan Resistance Level is bringing plenty of resistance together with the resistance zone. While current US-China trade war commentary has been more positive, it is unlikely that talks will yield an end to the trade war as differences and mistrust remain elevated. A correction down to the 104.442 to 105.493 support zone, which is marked by the grey rectangle, is expected to unfold as the Force Index extends its move to the downside.

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