USD/JPY: Temporary Top Within Broader Bullish Trend

The recent setback off a key resistance at 114.50 is well depicted by the formation of a bearish pin bar with a long tail on the weekly chart. Note that the candle pattern comes after two previous weeks of decreasing tick volume on the way up, followed by a significant increase in sell-side tick volume activity last week, hence why it may be challenging for buyers to recover control short-term.

The timing cycle, represented via the slow stochastic, shows both the weekly and the daily reaching stretched levels, which when combined with the clues of volume, may further anchor a period of lackluster price action as potential risk-of flows, mainly through the sell-off in equities, fail to provide a distinct advantage to nether the JPY nor the USD. The fact that the pair has not been supported even on higher US treasuries is a testament to the improved JPY outlook as capital flies back into the safe-haven yen appeal.

In the grand scheme of things, the rise in US treasury yields is a factor that by itself will continue to provide macro support. Even more so the moment that equities can turn around or alternatively, we see renewed strength in the DXY. The setback in the pair has really come as a function of lower equities coupled with losses in the DXY even as the US treasuries charge higher. This scenario is unlikely to be sustainable, so either US treasuries turn lower if risk off picks up or else, DXY or SP500 should recover and anchor the pair.

Even on the hourly, the constructive structure of higher highs and higher lows has now been negated, reinforcing the notion that a period of consolidation is currently at play. For now, the edges to play go from 113.50-114.00. Given the failure of sellers to extend the last successful down leg beyond 113.50, one should expect now a retest of the 114.00 where a new decision will be made.

Note: Each scenario has been prepared without taking into account your objectives, financial situation, needs or trading plan. The information presented is only intended to provide our very own views on the potential market direction. We conduct a diligent process of analyzing markets from an institutional perspective after the accumulation of a decade-long experience studying charts. Before acting on any information or advice, you should consider the appropriateness of it having regard to your circumstances. Please read our Financial Services Guide and current offer document which is available to be downloaded from www.globalprime.com.au

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