USD/JPY at risk of a failed breakout at 4.5-year highs

FOREXCOM:USDJPY   U.S. Dollar / Japanese Yen
After an impressive 500+ pip rally in less than a month from late September to late October, USD/JPY has clearly lost its mojo over the last month.

The pair pulled back from its 4.5-year high near 114.75 through the early part of this month before staging a big rally on the back of the 30-year high in US CPI last week. Unfortunately for bulls, it now looks like this rally too may fail to overcome the key 114.75 hurdle. This week’s bearish reversal in USD/JPY has formed a clear bearish divergence with the 14-day RSI , suggesting that buying momentum is waning and increasing the probability that a short-term top has formed.

As we head into next week, bears may look to push the unit down to retest last week’s low near 112.75, with a break below that level, if seen, opening the door for a deeper retracement toward 112.00 or lower. At this point, bulls would need to see a confirmed break and hold above the 114.75 level to reinvigorate the recent uptrend.