Technical Sentiment: Bullish
Key Takeaways
- USD builds bullish momentum ahead of Unemployment Claims;
- Higher Low warns of inverse Head and Shoulders;
- Japan Flash Manufacturing PMI due later tonight, with bullish expectations;
- USD/JPY faces huge resistance clusters at 107.40 and 107.80.
Price action should confirm very soon if USD/JPY can continue its rise and invalidate October’s downtrend.
Technical Analysis
Following a 50% Fibonacci correction completion, based on the 2-month 900 pip bullish uptrend, USD/JPY has recovered quite nicely since 15th October. Despite this 200 pip recovery, the pair is still at risk for further sell-offs unless buyers can convincingly break through the resistance clusters in order to invalidate and dissipate bearish pressure.
USD/JPY spot is trading around 107.20 toward the end of the U.S. session, flirting with a resistance trendline and previous lower high of 107.38. We also identify a possible reverse Head & Shoulders formation, albeit far from picture perfect. A break above 107.40 should trigger a cluster of stop losses, pushing price into the 100 and 200 Simple Moving Averages resistance at 107.80. If USD/JPY can then rally above this level, we’re likely to see a full recovery towards 110.00 in the next few weeks.
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Stochastic is rising out of oversold territory on Daily, suggesting the bottom at 105.30 will hold in the main uptrend, also pointing out there is plenty of room for USD/JPY to rally. We see a dip below 106.25 as invalidation for any short and medium-term bullish scenarios, since that would force traders to re-test 15th October’s low.
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Prepared by Alex, Chief Currency Strategist at Capital Trust Markets
