Consolidation: After falling to 105.19 last week, USD/JPY has been rallying to 107.39 to start this week before retreating.
(click to enlarge)
Bearish Attempt: The 1H chart shows that the pair has now returned below the 200-, 100-, and 50-hour simple moving averages (SMAs), and the 1H RSI has broken below 40, which shows lost of the bullish momentum we saw last week in the very short-term.
Now, if price breaks below the 106.35 pivot, it would also clear a rising trendline, and thus signal bearish continuation at least in the near-term toward the 105.19 low. (As I wrap up this article, price is indeed cracking this support.)
Expecting a Pullback: Now, with the 1H RSI already in oversold territory (below 30), we can anticipate a near-term bullish correction against the 10/21 dip. If price can find resistance in the 106.75-107 area, Monday’s decline would still be in play. A break above 107 however should shelve the bearish outlook and return the pressure toward the 107.39-107.57 highs.
Bigger Picture: Remember, the USD/JPY has been bullish since 2012, and rallied another leg from July through September. It has been consolidating in October and has returned to a previous 2014-high. So far this area is providing support.
Also note on the daily chart that the RSI is holding above 40, which shows maintenance of the prevailing bullish momentum established since August. A break above 107 thus could revive the uptrend.
(click to enlarge)
Downside Risk: A break below 105.19 however, could be a sign of further bearish correction, with the 104-104.13 area as the next support. This involves a previous resistance pivot and the 100-day SMA.
If price does fall back down to this area before rallying, we should consider the 110.08 high on the year as there to stay, especially if the daily RSI has fallen below 40. We can still expect bullish attempts, but might have to start limiting the bullish outlook to the 108-109 area, and respect the 110 high.
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