USD/JPY Technical Outlook: Rally to Pause?

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

• USD/JPY has run into major resistance
• The steep USD/JPY rally is showing signs of fatigue
• What is the outlook and what are the key levels to watch?

USD/JPY SHORT-TERM TECHNICAL FORECAST – NEUTRAL

USD/JPY’s rally is showing signs of losing steam as it tests one of the most significant resistance areas it has faced in recent months.

The sharp bearish reversal on Friday could be signal that USD/JPY’s uptrend could be stalling at least in the interim. This is because the reversal has taken place at important resistance – the 1998 high of 147.65, coinciding with the 200-quarter moving average and the upper edge of a rising channel from 2012 (see chart).

USD/JPY Quarterly Chart

Chart Created Using TradingView

Furthermore, negative divergence on the daily and weekly charts (rising price associated with a stalling or decline in momentum) is a sign of fatigue considering solid gains in the past one year. A decisive break below the September highs of 145-146 would confirm that short-term upward pressure has faded, raising the prospect of some consolidation or a minor retreat.

Any further setback could push USD/JPY towards the September intervention low of 140.35 near the 89-day moving average (DMA) and the July high. As the chart below shows, the last time USD/JPY was decisively below the average was in early 2021 before the surge began, so some sort of a rebound from there is possible.

USD/JPY Daily Chart

Chart Created Using TradingView

Only a break below the 89-DMA support would raise the risk of an extended pause or a change of trend from a medium-term perspective. Rising slope of the 200-day moving average and still-strong bullish momentum on the monthly chart continue to paint a bullish USD/JPY story beyond any short-term consolidation/retreat. As the previous update highlighted, the major reverse head & shoulders pattern triggered this year points to further upside in USD/JPY in coming months/years.

— Written by Manish Jaradi, Strategist for DailyFX.com