USD/JPY Forecast: Eyes three-month long rising trendline, US-JP yield spread narrows

Tuesday's bearish outside-day candle makes today's close pivotal.
10-year US-Japan bond yield differential is charting a head-and-shoulders pattern.
USD/JPY risks falling below the three-month-long rising trendline.

Omkar Godbole FXStreet Contributor

The USD/JPY pair is trading at 110.40 in Asia - down 0.15 percent on the day.

Having defended the confluence of rising trendline and 50-day MA in the last week of June, the USD/JPY convincingly crossed the falling trendline (drawn from May 21 high and June 16 low) on Monday and hence, was expected to re-test May 21 high of 11.40 this week.

Instead, it ran into offers at a high of 111.13 on Tuesday and ended up creating a bearish outside-day candle (bearish reversal pattern). Further, a short-lived break above the falling trendline (drawn from May 21 high and June 16 low) (or fake breakout) has weakened the bull case.

Daily chart

A close today below 110.50 (previous day's low) would validate the bearish outside-day candle and fake breakout and would shift risk in favor of a break below the trendline sloping upwards from the March 26 low and May 29 low.

A daily close below the three-month rising trendline would mean the rally from the March 26 low of 104.63 has ended and would put the focus back on the big bearish outside-week candle of May, allowing a deeper drop to 108.82 (38.2% Fib R of 104.63-111.40).

The 10-year US-Japan bond yield spread chart favors a convincing break in USD/JPY below the three-month-long rising trendline support, currently seen at 110.06.

Yield spread daily chart

The yield differential fell to 280 basis points on Tuesday from Monday's high of 284 basis points and is charting a head-and-shoulders bearish reversal pattern with neckline support around 2.75 percent. Acceptance below that level would open up downside towards 2.45 percent and a sharp drop in the USD/JPY pair.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold clings to gains just above $5,000/oz

Gold is reclaiming part of the ground lost on Wednesday’s marked decline, as bargain-hunters keep piling up and lifting prices past the key $5,000 per troy ounce. The precious metal’s move higher is also underpinned by the slight pullback in the US Dollar and declining US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP in choppy price action, weighed down by falling institutional interest

Bitcoin's upside remains largely constrained amid weak technicals and declining institutional interest. Ethereum trades sideways above $1,900 support with the upside capped below $2,000 amid ETF outflows.

Week ahead – Data blitz, Fed Minutes and RBNZ decision in the spotlight

US GDP and PCE inflation are main highlights, plus the Fed minutes. UK and Japan have busy calendars too with focus on CPI. Flash PMIs for February will also be doing the rounds. RBNZ meets, is unlikely to follow RBA’s hawkish path.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.