USD/JPY hits resistance: Bearish signal warns of a potential top

USD/JPY, arguably the most volatile FX currency pair, has certainly held its reputation this year with a constant flurry of uptrends and downtrends.

The first half of the year, demarcated by widespread dollar-selling, took the pair to lows not seen since September 2024 at 139.20.

However, a Liberation Day bottom in the dollar followed by a prolonged multi-month range led to a huge, decisive rebound in the pair.

Fundamentally, the still large yield differential—between the near-zero 0.50% in Japan and the persistently above 4% for the US 10-year yield—remained a fundamental boost underpinning demand for the US Dollar against the Yen.

This phenomenon significantly accelerated after Takaichi Sanae's appointment as Japan's Prime Minister.

As a notable fiscal dove following the ultra-loose policies of former PM Shinzo Abe to bolster Japanese economic growth, the Yen could not resist the renewed pressure.

After the election, USD/JPY jumped 1600 pips in a breakout gap and kept on going to the recent 154.50 highs, 4.70% above the October open.

Only recently, interesting technical developments may have marked a new intermediate top.

A bearish daily divergence is helping mean-reversion selling in the current risk-off session.

Explore its impact through our mulit-timeframe analysis of the FX pair.

The pair broke out far above its slower moving-averages but held rebounded several times on its 20-Day Moving Average (currently at 152.420) key technical pattern to monitor for immediate trends.

The new month may have marked the end of the ongoing rally however with the pair's buying momentum regressing from overbought levels; the Daily RSI even shows a Daily divergence - a typical sign of trend exhaustions.

Bearish divergences happen when new highs in price are not followed by new highs in momentum (or buyer strength) and the inverse can happen for a bullish divergence.

Such breakouts may not immediately be followed with a reversal, but the recent risk-off markets (Equities and Cryptos selling) seen since the middle of last month may provide a boost to the Yen.

Let's take a closer look.

USD/JPY technical levels of interest:

Support Levels:

• Shorter timeframe momentum pivot 152.00 to 152.50
• 151.50 Oct 28 rebound (minor support)
• July 150.00 to 150.90 support
• May Range Extremes 148.50 to 149.00

Resistance Levels:

• Recent highs 154.50
• Daily Resistance at February 2025 highs 154.00 to 155.00
• 4H MA 50 at 153.40
• 156.00 upside resistance

The current move has been one-sided for mean-reversion sellers taking the pair to a break of its ascending wedge.

An interesting test of the 153.00 handle, right around the current session lows, should offer a key mark to follow:

• A daily close below could prompt further selling
• A rebound from here may lead to a break-retest of the wedge.
• If buyers step again above 153.70 (look for a 4H candle close), a re-entry in the uptrend keeps high probability

Safe Trades!

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