The USD/JPY has been rallying in the past 2 weeks. Last week, it continued from a low of 106.25 up to 108.35. It has since stalled at this high.
When we look at the 1H chart, we can see the pair failing to break above the 108.35 high 3 times. After hanging around the 108.00 handle, it finally started this week with a bearish push. Price broke below the 50-hour simple moving average (SMA), and below 107.78 completing a price top. Price also fell below a rising speedline from last week, and the 1H RSI fell below 40, showing loss of last week’s bullish momentum.
From the 1H chart, it looks like price is getting ready to turn bearish. However, a more important support area lies in the 107.35-107.50 area. Let’s turn to the 4H chart.
First of all, the 4H chart shows October’s bearish correction from highs around 110, down to 105.19. Since this 105.20 low, USD/JPY has returned above October’s falling trendline, and almost cleared back above all of the 200-, 100-, and 50-period SMAs. The RSI has tagged 70, which suggests revival of the bullish momentum.
Now, as price tops off in the short-term, we can see 107.35-107.50 as the next area of support which involves 1) a previous resistance, 2) the rising trendline from 2 week’s ago, from the 105.20 low, and 3) the 100-hour SMA.
Holding above 107.35 would be a strong bullish continuation sign, at least with the 109 level in sight, with upside risk also toward the 2014-highs around 110.
On the other hand ,a break below 107.35 keeps the USD/JPY in consolidation, and a break below 107.00 would revive some bearish outlook in the short-term, especially if the 4H RSI also dips below 40. This would put the 105.20 low back in sight for the very short-term.
We should definitely see which side of 107 the USD/JPY ends up in after Wednesday’s FOMC statement. From USD/JPY’s price action so far, it looks like the market is ready to take off to the upside after a month of consolidation.
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