The USDJPY oscillated within a wide range during the third quarter of 2017, as investors juggled with the conflicting fundamentals driving the currency pair.

USDJPY up with Geopolitical Risk & Political Uncertainty

On one hand, a renewed focus on geopolitical risk and political uncertainty in States stimulated the flight to safety, consequently boosting the Yen.

On the other hand, reports around global stock markets hitting fresh record highs, simply rekindled risk appetite, ultimately limiting the Yen’s upside potential.

A similar scenario was seen with the dollar, which eventually bounced back to life in September, after hawkish comments from Federal Reserve members reinforced expectations of higher US interest rates in December.

With the Yen finding support from geopolitics in Q3 and the dollar buoyed by hopes of higher interest rates, the USDJPY transformed into an arena for both bulls and bears.

General Election in Japan

As Q4 gets underway, political risk in Japan will be in focus, as the general election looms.

Although there is still a consensus that Prime Minister Shinzo Abe’s coalition, will secure a majority in the Lower House, any surprises could expose the Yen to extreme levels of volatility.

A victory by Shinzo Abe could ensure more years of Abenomics, ultimately resulting in a weaker Japanese Yen.

Passive Japan and Driving US

Taking a look at the USDJPY, a strong catalyst is needed to break above the tough 115.40 resistance.

While the dollar sharply appreciated on the prospects of higher US interest rates, an actual rate hike in December could infuse bulls with enough inspiration to attack and conquer 115.40.

With regards to a move back towards 108.00, other than political risk in Japan, it may require the return of uncertainty and an aggressive selloff in the equity market, for the USDJPY to reach its downside potential.

With the Bank of Japan maintaining a passive stance, the dollar should continue to act as the main driver behind where the USDJPY concludes this year.

Technical Outlook on USDJPY

Focusing on the technical outlook, the USDJPY resides in a wide range on the weekly charts, with resistance around 115.40 and support at 108.00.

On the daily timeframe, prices are currently bullish, with lagging indicators such as the MACD and 50 Simple Moving Average pointing to further upside.

The daily setup suggests that prices could trade back towards the 114.40 resistance if the 113.20 level is breached.

A failure of bulls to keep the price above 112.00 invalidates the current bullish setup on the daily charts, with the next level of interest at 110.750.

Until the USDJPY can secure a monthly close above the high from July and March around 114.40, this pair is expected to remain susceptible to technical pullbacks on the monthly timeframe.

Traders will continue to observe how the currency pair behaves within the weekly bearish channel. A decisive weekly close back below 111.50, may encourage sellers to target 110.00 and 108.00 respectively.

In an alternative scenario, bulls should be inspired to target 118.50, if the 115.40 level is conquered.