USD/JPY has been steadily declining since last Friday’s peaks after 100.0 remain untested. Price tanked last night during US trading session due to falling gold prices strengthening USD, bringing risk related assets lower. To add salt to wounds, a suspected terrorism bombing attack in the US that left 3 dead and left many more injured push fear levels to recent high, and USD/JPY responded in kind, falling below 96.0 before trading back up during early Asian session.
From a technical perspective, price managed to bounce of the 96.6 resistance (found on Daily Chart below) and tested the confluence between current downward trendline and recent support above 97.5. The confluence appears to be respected with price currently trading lower, turning away from the trendline with 96.6 in sight once again. 97.0 round number which was also acting as a interim resistance this morning, may provide some support against the 96.6 retest.
Stochastic readings are still pointing higher despite current bear candle. There remains the possibility that price may be able to break above current ceiling especially if European traders follow Asian session’s direction in the next few hours. Should that happen, it is likely that readings may hit Overbought region when price test 98.0 ceiling which may setup a potential bearish turnaround for the continuation of current descend from 12th April. Ultimately, a bullish bias may only be able to gain foothold if price is able to trade back above 99.0 once more, without which, current bearish bias may continue to reign.
Daily Chart is more bullish as the failure to break 96.6 continues to affirm current rally. Nonetheless, stochastic readings are showing the first sell signal with readings breaking below 80.0 for the first time since entering Overbought post BOJ announcement. A good guess will suggest that a retest of 96.6 on the daily chart is possible with ample distance between current reading levels and the Oversold region. However, a break below 96.6 may also be possible depending on the strength of the bearish momentum. However, the next level of support around 94.6 may be harder to break as readings has a higher likelihood of hitting oversold by then. Every single break of the consolidation channel will weaken current bullish bias, however price should preferably break the 92.0 floor and confluence with the 161.8% Fib extension for a full bearish reversal scenario.
Fundamentally there are good reasons for JPY to strengthen. BOJ Kuroda has indicated that he is done for now, and we should not be seeing anymore BOJ action within this quarter. Beyond BOJ stimulus, it is hard to find any other factors that can bring Yen weaker besides stronger risk appetite. Current risk appetite has retreated greatly due to the uncertainty/high volatility and traders are more likely to re-enter into defensive assets when such situation occur. Hence JPY has all the ingredients needed for the bearish recipe, and now what we need is for the bear chef to start taking control to push prices lower in the longer run.
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