What happened on USD/JPY? – EXPLAINED

One of the most important things about the JPY currency to remember is that it is a safe haven currency. This means then whenever there is some uncertainty like war, natural crisis, disasters etc…then people shift their funds to safe assets (JPY, CHF, GOLD,…). They want their money to be safe.

What happens to a currency when everybody gets crazy buying it? It strengthens. Rapidly. Then as the uncertainty and panic start to fade, also the prices of safe haven assets start getting back to normal.

Have a look at the picture below. It is the USD/JPY Daily chart. I marked two places. They look very similar, right? What you see is the JPY strengthening rapidly (USD/JPY goes down= JPY is getting stronger) and then getting back to normal. This is the big guys pumping their money in and out of JPY currency as a reaction to uncertainty.

USD/JPY rejection – EXPLAINED
Lets now talk about the smaller picture on USD/JPY and have a look at what exactly happened on Monday and Tuesday.

Monday opened with a 120 pip gap and then there was a crazy sell-off. People were buying JPY massively. The price moved more than 400 pips downwards.

Then there was a rotation (this is important – I will talk about it later) and on Tuesday the USD/JPY completely reversed. It closed the gap and moved over 400 pips upwards! This completely negated the selling activity!

USD/JPY gap
One more thing worth pointing out is the nice reaction to the heavy Volume Cluster which got formed above the gap (marked in red).

Strong rejection of lower prices
Overall the price on USD/JPY went aggressively downwards, then turned and the next day it completely negated the whole sell-off. This is what I call a Strong rejection of lower prices.

What I am interested in in such strong rejections is whether there was some significant place where heavy volumes got traded. I use my Flexible Volume Profile on the rejection and this immediately shows me if there is such a place or if there isn’t.

In this case it is crystal-clear. HUGE volumes got traded around the 102.28 area. So what happened here? First, sellers were pushing the price downwards (400 pip move). Then everything calmed down and big guys started quitting short positions and entering longs. They did this in the rotation.

*BTW to enter a long you need somebody who sells it to you. Who was selling? All those guys who thought that this downward movement will continue. Those guys were adding to their shorts.

So, in the rotation buyers entered longs and their next move was aggressive buying. This aggressive buying (buying with market orders) caused a new uptrend.

Volume Cluster around 102.28
This heavy Volume Cluster you see on the picture above is currently a strong support. Why? Because buyers were entering a lot of their buying positions there. When the price makes it back to this level again it is pretty likely that those buyers will become active and that there will be another buying reaction. This should help to move the price upwards from this area again.

I hope you guys liked this analysis. Let me know what you think in the comments section below!

Happy trading!

-Dale