USDJPY appears to be having trouble sustaining its gains past the 110.00 major psychological resistance, as a double top pattern has formed on its 4-hour time frame. Price is currently testing the neckline around the 108.00 handle.
A break below this level might confirm that a selloff is in the cards, possibly around 200 pips in height, which is the same as the chart formation. Take note though that stochastic is already in the overbought area, indicating that a bounce back to the 110.00 resistance is possible. MACD is also hinting at a possible pickup in buying pressure.
USDJPY Trade Outlook
A downside break from the neckline could lead to a drop to the next support area at the 106.00 major psychological level. Near-term support can also be found at 107.00-107.50, which acted as previous resistance and is near the 200 simple moving average.
Event risks for this USDJPY trade include the release of the FOMC meeting minutes, which could show if policymakers are starting to draft an exit strategy and when they plan to implement this. On the other hand, if there is much opposition against the exit strategy or potential Fed rate hikes for next year, then the dollar might continue to give up ground and lead to further unwinding of USDJPY longs.
As for the BOJ, Kuroda doesn’t appear ready to add to stimulus just yet as the Japanese central bank once again decided to stand pat in their latest rate statement. However, the current account balance just recently missed forecasts and data from Japan have been relatively weak, upping the odds that the BOJ might be more open to easing again sooner or later.
With that, the path of least resistance for this pair is still to the upside although USDJPY is showing some short-term reversal signals, possibly paving the way for a major correction.
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