USDJPY has sold off upon reaching a high of 125.80 and may be looking to start a downtrend. The 100 SMA is moving below the 200 SMA, which means that selling pressure is building up.
Before price heads further south, a pullback to the broken support around the 124.00 major psychological level has taken place. This lines up with the 50% Fibonacci retracement level and might continue to keep holding as forex resistance in the current corrective wave.
Stochastic is on middle ground but is pointing down, hinting that there is more downside momentum left. RSI is also moving lower, which means that sellers are taking control of price action and might push USDJPY down to the previous lows at 122.50.
A higher pullback to the 61.8% Fibonacci retracement level might still be possible though, as this area lines up with the simple moving averages, which have acted as dynamic inflection points.
USDJPY Fundamental Factors
The recently released US retail sales report could keep the US dollar in demand though, as the strong consumer spending data confirms that the Fed would stay on track to hiking interest rates by September. The headline figure showed a 1.2% gain while the core figure indicated a 1.0% increase.
In Japan, data has been weak yesterday since the BSI manufacturing index showed an unexpected slide from 2.4 to -6.0 instead of improving to the projected 3.2 reading. For today, the revised industrial production report is due, along with the tertiary industry activity index.
Monetary policy differences between the Fed and the BOJ also suggest further gains for the pair, as the former is looking to tighten monetary policy soon while the latter seems inclined to keep easing in play. However, BOJ Governor Kuroda said that the yen’s excessive gains over the past years have already been corrected, implying that they’re not likely to add to their stimulus efforts.
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