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Japanese Yen Technical Outlook: Downtrend Back in Play?

Japanese Yen Technical Outlook: Downtrend Back in Play?

Manish Jaradi, Strategist

Title:

Japanese Yen Technical Outlook: Downtrend Back in Play?

Teaser:

USD/JPY’s break above last week’s high may have reduced imminent downside risks, but it doesn’t necessarily imply a resumption of the multi-month uptrend. What is the outlook and the signposts to watch?

Body:

US Dollar, Japanese Yen, USD/JPY - Technical Outlook:

  • USD/JPY has rebounded from key support.
  • A resumption of the multi-month uptrend looks less likely
  • What is the outlook and what are the signposts to watch?
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USD/JPY MEDIUM-TERM TECHNICAL FORECAST – NEUTRAL

USD/JPY’s break above last week’s high may have reduced imminent downside risks, but it doesn’t necessarily imply a resumption of the multi-month uptrend. On the contrary, USD/JPY could be set for a range-bound phase in the coming weeks.

USD/JPY confirmed scenario I outlined on November 13, coming off the November 15 low at 137.70 on Monday to break above a ceiling on a horizontal trendline from last week at about 140.80. This follows a rebound from a horizontal trendline from July, at about 139.50, as well as the 89-day moving average. The pair is now testing a hurdle at the November 11 high of 142.50, which is reinforced by the 89-period moving average on the 4-hour and the daily charts. This is not too far from 143.00-143.15 (the 50% retracement of the November 7-11 decline).

USD/JPY 240-minutes Chart

image1.png

Chart Created Using TradingView

If last week’s rebound were to extend, it is critical that USD/JPY, breaks above 143.00-143.15 at minimum. Oftentimes when a big/wide-body candle appears on a chart, the 50% retracement of that candle tends to serve as key resistance from a trend perspective. Big moves reflect greater conviction amongst market participants and if the market is unable to recover half of the move, it can imply further weakness.

{{GUIDE|JPY}}

USD/JPY Daily Chart

image2.png

Chart Created Using TradingView

Furthermore, for a retest of the October high, USD/JPY needs to rise above 147.50 (the high from the week of November 7-11). Givenoverbought conditions and fatigue on higher timeframe charts, the odds of USD/JPY breaking above 147.50 appear to be low. Indeed, it is quite possible that USD/JPY could settle a 137-147 in the coming weeks.

On the other hand, if USD/JPY fails to clear 143.00-143.15, then the chance of a retest of 137.70 would not only grow but also raise the odds of a drop toward the 200-day moving average (now at about 133.50).

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--- Written by Manish Jaradi, Strategist for DailyFX.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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