USD/JPY Forecast: Bears in control after Head and Shoulders breakdown

The US dollar was offered across the board on Friday after the US data missed already low expectations - CPI, Retails Sales, IP and Consumer Confidence all printed weak. The Washington tax reform delay isn’t helping matters either.

The Dollar-Yen pair fell to a low of 112.25 on Friday before witnessing a moderate technical recovery this Monday morning in Asia. The spot was last seen trading around 112.60. Upbeat China data released earlier today may lift European stock markets and keep Yen under pressure, although upticks in USD/JPY could be met with fresh offers, courtesy of the falling inflation expectations in the US. 

Technicals 

Resistance

112.89 (head and shoulders neckline - now acting as resistance)
113.10-113.00 (5-DMA + sliding trend line hurdle on the 1-hour chart)
113.58 (right shoulder high)
113.69 (July 5 high)

Support

112.32 (38.2% Fib R of 108.80-114.49)
111.67 (4-hour 200-MA) - 111.65 (50% Fib R of 108.80-114.49 + 100-DMA)
111.14 (June 26 low)
111.00 (zero levels)

1-hour chart

Observations

Head and Shoulders breakdown
Bearish 100-MA & 200-MA crossover

Commentary:

Head and shoulders breakdown has opened doors for 111.29 (target as per measured height method). The 1-hour RSI’s recovery from the oversold territory is falling apart near 50.00 levels. Meanwhile, the 4-hour RSI is yet to hit the oversold territory, thus suggesting room for further losses in the pair. The downward sloping 1-hour 50-MA (currently at 113.00) is likely to cap gains in the pair. Failure to hold Asian session gains followed by a break below 112.32 could yield another leg lower to 111.65 levels. 

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