Key Points:
- Strong zone of resistance should encourage a reversal.
- Losses likely to be limited to the 113.00 handle.
- US employment data could prevent the forecasted decline from occurring.
The dollar yen’s recent uptrend could be on thin ice as it is now pushing the upper limits of its ascending channel structure. As a result of this, we could be about to a slip back to around the 113.00 handle within a week or so. However, we are unlikely to see the long-term uptrend end just yet so we shouldn’t expect to see downside extend far beyond this level.
Firstly, let’s take a look at the channel in question which should be about to exert some downward pressure on the USD/JPY. As is illustrated below, the upside constraint of the channel is now very much in sight which will be causing some of the bullish momentum to wear thin. Moreover, we also have the 50.0% Fibonacci retirement reinforcing resistance around the 115.35 mark which will severely cap upside potential.
Furthermore, bearish sentiment could be about to return due, in no small part, to the movement of the stochastics into overbought territory. Whilst it’s true that the oscillator has been signalling this for a while, now that we have reached the upside of the channel there should be additional impetus for the pair to retrace. Such a maneuverer would also be in line with the Bollinger band analysis which is highly suggestive of a near-term decline for the USD/JPY. Specifically, the pair has pushed the upper band fairly hard over the past few sessions and is now looking ready to return to the central tendency of the bands.
Once we do see a decline move into full swing, we can expect it to extend to around the 113.00 handle before support provides another impasse. This is largely a result of the projected downside constraint of the bullish channel but the 100 day EMA could also present an additional challenge for the bears seeking to break the medium-term trend. When this firm support has been reached, we should see bullish sentiment return which could begin to move the USD/JPY towards that January high.
Ultimately, this technical forecast is somewhat contingent on the US Employment data exceeding expectations by too greater margin. As a result, it will be worth keeping a close eye on the results as they are released to avoid being caught off guard. However, the slip in the unemployment rate to 4.7% has been largely priced in which should mean it’s the NFP numbers that are more likely to upset the apple cart here. Luckily, the ADP numbers have already inflated the market’s expectations which could actually work in favour of the above forecast.