USD/JPY Forecast: bearish bias intact
|USD/JPY closed below the 50-day moving average (MA) for the second straight day on Monday, strengthening the bear’s position in engineering a drop below 109.91 (38.2 percent Fibonacci retracement of the rally from the March low of 104.63).
The Japanese yen picked up a strong bid on Monday as the tensions between the US and Turkey escalated after the US imposed sanctions against Turkey for continuing to hold an American pastor in custody.
As a result, USD/JPY printed a 1.5-month low of 110.11 on Monday before rising back to 110.90. The recovery could be associated with the minor corrective rally in the oversold lira and uptick in the treasury yields.
Further, the S&P 500 futures are reporting a 0.14 percent gain as of writing, indicating the stocks may regain some poise today. The positive action in the equity index futures is likely helping the USD/JPY post modest gains in Asia.
At press time, the currency pair is trading at 110.84 – up 0.10 percent on the day. While the recovery from 110.11 to 110.80 is encouraging, the bearish technical picture is still intact.
To start with, acceptance below 50-day MA could have emboldened the bears. After all, the pair had been creating higher lows along the key MA since April. This, coupled with the lower highs and lower lows pattern indicates a bullish-to-bearish trend change.
The 5-day and 10-day MAs continue to slope downwards in a bear-friendly manner. The 5-day MA has crossed the 50-day MA from above (bearish crossover).
The 14-day relative strength index (RSI) is biased toward the bears.
Hence, the bears remain in the hunt for 109.91 (38.2 percent Fibonacci retracement support). A close below that level would only bolster the bearish setup and open the doors to 108.90 (50 percent Fibonacci retracement).
On the other hand, a move above the descending trendline would abort the bearish view and a daily close above 112.15 (Aug. 1 high) will likely put the pair on the path to 113.18 (recent highs).
USD/JPY Daily Chart
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