USD/JPY Builds Momentum; Key Resistance at 107.40

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 15^th 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.

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 15^th October’s low.

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Prepared by Alex, Chief Currency Strategist at Capital Trust Markets