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USD/JPY Sits at Channel Support; RSI Hovers Above Oversold Territory

USD/JPY Sits at Channel Support; RSI Hovers Above Oversold Territory

David Song, Strategist

Talking Points:

- USD/JPY Sits at Channel Support; RSI Hovers Above Oversold Territory.

- GBP/USD Struggles to Test 2017 High Ahead of ‘Brexit’ Trigger, U.K. Mortgage Applications.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

110.38

110.83

110.18

28

65

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • The near-term outlook for USD/JPY remains tilted to the downside as the pair extends the series of lower-highs from earlier this month; the recent strength in the Japanese Yen has been largely accompanied by a decline in risk sentiment, with the Nikkei (JPN225) sitting near the monthly low (18,867) heading into Japan’s 2016 fiscal year-end.
  • However, the Relative Strength Index (RSI) may highlight a near-term exhaustion as it continues to hover above 30 and struggles to push into oversold territory; a turn in the momentum indicator may foreshadow a rebound in the exchange rate.
  • With Fed Chair Janet Yellen scheduled to speak later today, the fresh comments may sway the USD/JPY exchange rate as officials continue to project three to four rate-hikes for 2017, and the greenback may trade on a firmer footing should the central bank head show a greater willingness to raise the benchmark interest rate sooner rather than later.
  • Nevertheless, interest rate expectations have narrowed since the March meeting, with Fed Fund Futures now pricing a less than 50% probability for a June rate-hike, and the recent developments in the exchange rate may indicate a broader shift in market behavior as Fed officials continue to project a terminal fed funds rate close to 3.00%.
  • In turn, a break/closes below the Fibonacci overlap around 109.40 (50% retracement) to 109.90 (78.6% expansion) opens up the next region of interest around 108.30 (61.8% retracement) to 108.40 (100% expansion); would also like to see the RSI mark the first oversold reading since June for confirmation/conviction.

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.2514

1.2596

1.2504

45

92

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD appears to have made a failed run at the 2017 high (1.2706), with the British Pound at risk of facing further losses over the next 24-hours of trade as the U.K. starts its process of departing from the European Union (EU); the pulls back from trendline resistance may open up the range from earlier this year especially as U.K. Mortgage Approvals are expected to downtick in February.
  • Nevertheless, the Bank of England (BoE) looks poised to retain the current policy at the next meeting on May 11 as Governor Mark Carney and Co. persistently warn ‘there are limits to the extent that above-target inflation can be tolerated,’ and the central bank may make further attempts to buy more time as Prime Minister Theresa May begins the negotiation process.
  • Failure to test the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement) shifts the near-term outlook, with a break/close below 1.2460 (61.8% expansion) to 1.2490 (38.2% retracement) opening up the next downside hurdle around 1.2370 (50% retracement) followed by 1.2270 (23.6% retracement).

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Read More:

Gold Prices Recover Entire March Decline – FOMC, US GDP in Focus

EUR/USD – Will it Vote Yes or No on a Breakout?

FTSE 100 Dropping into Trend Support, but Will It Hold?

Crude Oil Price Forecast: Bearish Evidence Is Gathering Steam

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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

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