USDJPY Reversal at Support Turned Resistance – Oct 24, 2014

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USDJPY Reversal at Support Turned Resistance - Oct 24, 2014

USDJPY Reversal at Support Turned Resistance - Oct 24, 2014

USDJPY is stalling at an area of interest, which lines up with the 108.00 major psychological resistance level. This also coincides with the 200 SMA and the 61.8% Fibonacci retracement on the latest swing high and low of the 4-hour chart.

Stochastic is suggesting a pickup in selling pressure, as the indicator has reached the overbought zone. MACD is suggesting that there may be a bit of buying pressure left.

A selloff could take the pair back down to its previous lows at the 105.50 minor psychological mark. The 100 SMA has just crossed below the 200 SMA, which suggests that a downtrend is in the cards.

USDJPY Forex Forecast

On the other hand, an upside break past 108.00 could be a sign that more gains are in the cards, enough to take USDJPY to its previous highs at 110.00. Event risks for this USDJPY setup include the US new home sales release and potential profit taking at the end of this trading week.

Bear in mind that BOJ Governor Haruhiko Kuroda has just hinted at further stimulus, as Japan might have trouble meeting its 2% inflation target. The central bank has just looked into energy price trends and predicted that inflation might drop back to 1% for the economy, which might warrant more easing. Apart from that, weak Japanese economic data suggests that the country hasn’t fully recovered from the sales tax hike yet.

The path of least resistance is to the upside, but the change in Fed stance isn’t likely to allow USDJPY to extend its gains anytime soon. In their latest statement, the Fed mentioned that they might not be ready to hike rates by next year, as there are still several challenges to the domestic and international economy.

A buy order past the 108.00 mark makes fundamental sense but it’s hard to imagine that USDJPY may be able to extend its gains for the time being. A correction back to the previous lows or at least halfway there might still be possible.

To contact the reporter of the story: Samuel Rae at samuel@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.