The USD/JPY slide from about 102.90 to 101.80 during the 8/5-8.6 session. However, as we got into the 8/7 European-US session, trader bid the USD/JPY back above 102. Here are some observations from the 4H chart:
1) Price held above the rising trendline coming up from the 101.09 support pivot in July.
2) Price held above the 200-period SMA in the 4H chart.
3) Holding above 101.80 shows respect to the double bottom made in mid-July, and thus maintains a bullish bias.
(click to enlarge)
While the bullish mode is maintained, there are challenges in the near-term. You can see on the 4H chart that the USD/JPY is currently testing a key area around 102.40. This was a previous support area and if it becomes resistance, the bearish outlook will grow stronger. Also, the 50-period SMA is around 102.45.
Bullish Outlook: Thus a break above 102.50 should liberate the pair toward 103. In this scenario, the USD/JPy would look poised to break this level because it would be coming off a bullish development, with price holding above 102 (despite the brief violation).
The daily chart shows that indeed the market could be turning bullish. Price broke above a falling trendline, and the RSI pushed above 70, and looks like it will be staying above 40 on the retracement. Price is also staying above the cluster of moving averages.
In the bullish scenario, price should test the 103 level, with upside risk toward the 103.75-104 area, which would be testing the highs from March-April.
(click to enlarge)
If price fails to break above 102.50, and falls back below 102, then the bullish outlook will be shaky. A break back below 101.80 would then put the focus back toward the 101-101.10 lows from July, then the 100.75 low on the year.
The Bank of Japan will make its monetary policy statement in the upcoming Asian session. It if remains status quo, there is more likelihood that USD/JPY will rally. If the bank suggests it will slow down its easing, which is unlikely, then the USD/JPY should break back below 101.80 toward the aforementioned support levels.
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