The resistance on the USDJPY rising channel might hold, as the pair made a bearish divergence on its 1-hour time frame. Price made higher highs while stochastic had lower highs, indicating a buildup in selling pressure.
The oscillator is just starting to make its way down from the overbought area, which means that bears are just starting to hop in. If they push the pair down, price could make its way back to the channel support close to the 119.00 major psychological level.
USDJPY Trade Setup
Shorting at market with a stop above the 120.00 major psychological level and aiming for the 119.00 mark could work for a day trade. Event risks for this setup today include the US core PCE price index and its ISM manufacturing PMI. Weaker than expected reports could remind traders that the Fed is in no rush to hike rates, which might lead to dollar weakness.
Take note though that data from Japan has been mostly weaker than expected, leading traders to anticipate further easing from the BOJ and more gains for USDJPY. The path of least resistance is to the upside, especially since the rising channel is holding, but a quick countertrend setup might still yield decent profits.
Later on in the week, the US NFP release might spur larger price moves for USDJPY, as this would confirm if the US economy is doing well. A weaker than expected reading could force the US currency to return its recent wins, especially if forex traders start doubting that the recovery could carry on.
As for Japan, no major reports are lined up. An upside break past 120.00 could mean a move towards the previous year highs near the 122.00 major psychological level. On the other hand, a strong surge in selling pressure could push for a downside break of channel support and lead to a move towards 118.00 or 116.00.
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