Talking Points:
- USD/JPY spiked lower this week just as it was starting to hold ground above a key downtrend line
- However, momentum indicators suggest that that rise had exhausted the bulls
- 2017’s drift lower remains very much in place
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This week’s spasmodic lurch lower for USD/JPY came at an interesting point for the cross.
For it came just after the pair poked its nose above a downward-sloping trend line which had contained progress for all of 2017 up to that point.
So, the question must now be how much conviction was there behind the sharp falls we saw on Tuesday and Wednesday of this week. Sadly for bulls, it seems that there was quite a bit. In fact, the USD/JPY RSI made its first daily-basis foray into clearly “overbought” territory this year at the recent peak, last week’s 114.26.
This strongly suggests that the spike lower we have seen this week was a temporary acceleration in USD/JPY’s modest but clear meander lower this year, and that the earlier rise to that peak was an aberration.
Of course, the pair’s current recuperation should be closely watched, to see whether it can approach that downtrend like once more. And the fundamental environment is clearly volatile. But a resumption of that meander looks like the literal path of least resistance from here.
Meanwhile AUD/JPY would appear to be in a rather graver predicament still. It has moved ever further below from a comparable 2017 downtrend line, and Thursday’s daily range put the November 21 closing high back into play, as support. This level, at 81.63, held the AUD’s fall back in late April and may do so again.
However, if it doesn’t then the entire rise from the lows of last November will be in jeopardy.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
