The US dollar came bouncing back from the 110.00 support level against the Japanese yen currency yesterday, as voracious demand was seen for greenback once again on the foreign exchange market.
Perhaps the most telling correlation to the sudden recovery was the US dollar index’s test of its 200-period moving average. The US dollar index bounced sharply after testing this key technical metric for the first time since its bullish breakout towards the end of March.
During today’s Asian session the USDJPY pair dropped below the 110.00 level, as bond yields took a tumble again. I expect that the USDJPY pair will soon come bouncing back, even though the recovery in the pair has started to stall.
Today’s FED meeting should be a big deciding factor in any recovery, especially a more hawkish FED. This dynamic does guarantee future gains on the foreign exchange market, however, positive dynamics such as the FED tightening policy before the Bank of Japan is certainly a bullish price catalyst.
In fact, the Federal Reserve is now more likely to strike a positive tone towards future rate increase if the economic data points continue to shine like yesterday’s JOLTS jobs opening report. Indeed, Japanese data has not shown significant advances like the American economy did last month.
On the technical front, bulls probably need to continue to defend the 110.00 level in the short-term to underpin the bid-tone and place the emphasis back towards a coming breakout above the 111.00 resistance level. According to the ActivTrader Market Sentiment tool some 78% of traders are bearish towards the USDJPY pair right. The bearish skew is noteworthy and speaks towards further gains in the USDJPY pair, as traders are typically on the wrong side of the market during large sentiment skews.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the USDJPY pair has recently broken under a triangle pattern, following a move below the 110.50 support level.
Traders should note that the pattern has reached its full downside target, and bulls are now trying to stabilize the USDJPY pair, following the large decline under the 110.00 level.
It is noteworthy that a large, inverted head and shoulders pattern will form if the USDJPY pair reaches the 111.00 level. According to the size of the potential price pattern the USDJPY pair could rally towards the 112.50 level if the 111.00 level is broken.
USDJPY Medium-Term Technical Analysis
The daily time frame continues to show a multi-year trendline breakout while the price trades above the 109.85 level. Typically, these types of breakouts can cause major new market trends when they finally break.
Bulls need to keep price above the 109.80 area in the medium-term to keep the recent breakout valid. The 112.10 and 115.00 levels remain the likely medium-term upside targets for the USDJPY pair.