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USD/JPY at Critical Juncture as ST Rally Grapples with MT Bearish Patterns

USD/JPY at Critical Juncture as ST Rally Grapples with MT Bearish Patterns

Christopher Vecchio, CFA, Senior Strategist
USDJPY_at_Critical_Juncture_as_ST_Rally_Grapples_with_MT_Bearish_Patterns_body_Picture_1.png, USD/JPY at Critical Juncture as ST Rally Grapples with MT Bearish Patterns

Chart prepared by Christopher Vecchio using Marketscope 2.0

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FOREX Analysis: The beginning of June yielded the start of a Bearish Broadening Wedge (off of the February 25 and April 4 lows), but near-term bullish momentum has signaled a false breakout now that the USDJPY rests above the wedge’s support, at ¥96.65/80 today. Although the USDJPY broke the RSI downtrend last week, near-term divergence has formed as the rally has seen RSI take out prior swing highs without the same occurring in price, as the pair has failed to achieve the 50% Fib retracement from the May high to the June low – the same occurred after the first major June low was set on June 7 (price rallied to 99.28, 50% at 99.35; now price has rallied to 98.70, 50% at 98.76 [blue line]). The 98.70 high this week also comes in below 98.80 (38.2% Fib February low to May high [red line]).

FOREX Trading Strategy: With US Treasury yields screaming higher, a widening UST-JGB yield spread should be supportive of further gains in the pair. However, with the rebound from last week’s low to high resembling that of the rebound from June 7 to June 10, a fractal may be in play here hinting at further downside pressure. A break of 98.70/80 necessarily points to 99.25/35 (post-May NFP swing high). Lower, 96.15/20 (23.6% Fib May high to June low [red line]) and 95.75/80 (61.8% Fib February low to May high [blue line]) are support. A near-term bullish bias is warranted as long as price holds 96.65/80; a medium-term bearish bias is warranted as long as price holds 99.25/35.

--- Written by Christopher Vecchio, Currency Analyst

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