USD/JPY Forecast - Bearish divergence followed by sideways action

The Dollar-Yen pair formed around the top candle stick formation on Thursday as the sell-off in the EUR/USD after the ECB’s dovish QE Taper helped the greenback score gains across the board. USD/JPY recovered from the low of 113.12, but the gains were capped around 114.00 on account of the pair’s overbought status.

On the data front, the US initial jobless claims release showed the labour market remains in a healthy state. Initial jobless claims, a proxy for layoffs across the US, fell by 10,000 to a seasonally adjusted 258,000 in the week ended Dec. 3. Economists were expecting a print of 255,000. The four-week moving average of the claims edged up last week by 1,000 to 252,500.

Despite the upbeat data, the 10-year treasury yield remains well below Dec 1 high of 2.492%. The signs of exhaustion in the treasury yields add credence to the possibility of a correction in the Dollar-Yen pair.

Technicals - Bearish break from the range likely

4-hour chart

• Bearish price RSI divergence followed by a sideways action suggests the pair could be forming a nice topping pattern and a bearish break below the channel floor of 113.20 would open doors for a pull back to 112.35 levels.
• The spinning top formation on the daily chart adds credence to the bearish price RSI divergence seen on the 4-hour chart.
• On a larger scheme of things, bearish invalidation is seen only below 110.00 levels.
• On the higher side, a bullish break of the rising channel would negate the bearish price RSI divergence and expose resistance at 115.57 (Dec 2014 low).

AUD/USD Forecast: Awaits bullish daily close above 0.7489

Daily chart

• Pair’s refusal to break below key support level of 0.7450 (38.2% of 0.6827-0.7835) in Asia suggests the doors remain open for a bullish break above 0.7489 (38.2% of 0.7778-0.7311).
• Moreover, the spot needs to see a daily close above 0.7489. That would open doors for 0.7550-0.7560 levels.
• On the lower side, only a daily close below the rising trend line (drawn from Nov 21 low and Dec 1 low) support seen today at 0.7414 would add credence to the repeated failure at 0.7489 (38.2% of 0.7778-0.7311) and shift risk in favor of a drop to 0.70 levels.