Following a dip to 115.85, USD/JPY has been consolidating since mid-January (within a larger consolidation that began in December). It has since retreated to 118.85 and then consolidated for couple of weeks until last Friday’s US NFP jobs report. The 4H chart shows the market coiling tentatively ahead of the economic release.
Bullish Reaction: After the release, the USD/JPY jumped from a common support area to above 119.00. Price is now above the 200-, 100-, and 50-period SMAs in the 4H chart. The RSI also shot up above 70, showing bullish momentum. It also showed some near-term overbought condition, and the market seems to think so as it defended the 119.25 handle.
Anticipating a Pullback: Now, even if the USD/JPY falls on Monday (2/8), it could still be within the context of a bullish continuation scenario. If price falls toward 117.75-118 area, it should find support there if the market were indeed bullish. A break below 117.75 however would put USD/JPY under the SMAs and take away the bullish bias. Also, if the RSI can stay above 40, the bullish momentum has better chance to extend. If it breaks below the 40 level, Friday’s bullish momentum would be lost.
Bearish scenario: In the bearish scenario, where price falls below 117.75, the pressure would return towards the 116.75-117.00 lows. Below that, the 115.56-115.85 low comes into play. this is the support of a triangle consolidation pattern in the medium-term.
Bullish Scenario: Now, if USD/JPY holds above 118, and the 4H RSI holds above 40, the pressure will remain towards a descending triangle resistance seen in the daily chart, around 119.50.
A break above 119.50 would expose the 121.70, 2014-high. Another couple of signs of bullish continuation would be price crossing over the 50-day SMA, and the daily RSI returning above 60.
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