Key Points:
- USD/JPY declines sharply but finds support around 116.30.
- RSI Oscillator strongly oversold.
- Expect an orderly retracement back towards the 200-hr MA.
The New Year has opened with a bang for the USD/JPY as the pair has seen plenty of selling, over the past 24 hours, mainly due to the market’s miscalculation over the sentiment within the Fed’s FOMC minutes. Subsequently, we have seen some relatively sharp declines for the currency pair that have seen it form a new low around the 116.30 mark. However, it remains to be seen if the Dollar will continue to depreciate in the near term.
Taking a look at the USD/JPY’s chart is illuminating in that it shows the relatively sharp downward trend over the past 24 hours. In fact, price action has declined sharply enough that it is now challenging a key support zone around the 116.30 mark. From the technical analysis perspective, the decline was largely not a surprise given the appearance of a bearish Gartley pattern on the 1-hour time frame. In addition, the decline was likely predestined when price action failed to break through resistance at 118.61.However, the bears shouldn’t be rejoicing just yet, especially given that the RSI Oscillator is strongly within oversold territory.
Subsequently, the collapse is likely to have had its day given that there is a relatively strong liquidity zone around the 116.20-30 mark. In fact, late December saw this area challenged repeatedly yet the zone held firm. In addition, given that the RSI Oscillator is strongly suggesting a reversal afoot, it is highly probable that we will see a bounce from the currently depressed level.
The most likely scenario for a retracement of the recent losses would be for a gradual climb over the next few sessions back towards the 38.2% Fibonacci level at 117.52. However, this would obviously depend on price action managing to convincingly defeat the key resistance levels at 116.87 and 117.19.
Ultimately, the USD/JPY is destined to move back towards the mean in the near term which is likely to see it settle around the 200-Hour MA at 117.25. However, it could be a relatively volatile remaining few days for the pair with the US ADP, NFP and Unemployment Claims results due out shortly.