USD/JPY Short Term Pullback

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USD/JPY Short Term Pullback

After breaking through a key technical barrier, USD/JPY might retrace before resuming its climb. On its 1-hour time frame, a possible break and retest play might be in the cards for the pair.

A closer look at recent USD/JPY price action shows that the pair made a fresh break above the 102.50 minor psychological resistance level that has been holding in February. Since then, the pair has climbed up to the 103.70 area then retreated as bulls were unable to sustain the momentum.

Stochastic is almost in the oversold region, indicating a return of buying pressure. However, the oscillator could have room to dip a little more, which suggests that USD/JPY might do so as well.

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USD/JPY Technical Outlook

With that, price might dip back to the 102.50 region, which is in between the 38.2% and 50% Fibonacci retracement levels on the 1-hour chart. A bounce from this zone could take the pair back up to its previous highs near 103.70. 

A deeper retracement could go as low as the 61.8% Fib, so a stop loss below this level could give the pair enough leeway in case volatility picks up. A drop below this line in the sand support zone could mean that the break was a false one and that an uptrend isn’t likely to take hold for now.

Bear in mind that the recent yen rally was spurred by the BOJ’s decision to hold off any additional easing, despite the downturn in exports and the potential drag from the upcoming sales tax increase this April. The central bank also decided to keep their growth and inflation forecasts unchanged in the near term, which came as a surprise to most traders and convinced them to close some of their long USD/JPY positions around recent highs.

However, the US dollar remains a stronger currency compared to the yen as tensions persist in the Asian region. After all, the conflict in Ukraine is still going on and the search for the missing Malaysian Airlines plane is still inconclusive.

To contact the reporter of the story: Jonathan Millet at john@forexminute.com