USD/JPY Forecast: Faces confirmation of bearish reversal

The weekly chart shows negative follow-through to last week's bearish outside-week candle, i.e. bearish reversal confirmation is on the cards.
A break above 110.00 would keep bulls in the game.

Omkar Godbole FXStreet Contributor

USD/JPY remains below 109.00 even though the US stocks regained some poise on Wednesday, possibly because the US-China trade tensions have resurfaced ahead of next week's trade talks.

Italian bonds rallied on Wednesday on hopes that fresh elections could be avoided. The Italian 2-year bond yield fell 24 basis points and Milan’s FTSE MIB stock market index closed up 2.1 percent. The resulting risk-on action in the US stocks failed to put a strong bid under the USD/JPY, seemingly due to fears the US will impose tariffs on Chinese imports.

The White House has said that a final list of tariffs on $50bn of Chinese imports will be released by 15 June and the tariffs will be imposed “shortly thereafter”. Meanwhile, China has vowed to fight back if Washington goes ahead with the tariff hike.

The trade tensions will likely keep USD/JPY under pressure and unless the US wage growth figure for May beats estimates, a bearish reversal confirmation looks like a done deal.

Weekly chart

The spot will likely end the week on a negative note, confirming a bearish outside-week reversal, i.e. a bullish-to-bearish trend change/the rally from the March low of 104.63 has ended and the bears have regained control.

A bearish reversal confirmation would open the doors to a deeper sell-off to 105.00 - 104.63 (March low).

A break above 110.00 would save the day for the dollar bulls. That said, a convincing move above the long-term descending trendline hurdle (currently seen at 111.44) would signal a resumption of the rally from the March low of 104.63.

Author

Omkar Godbole

FXStreet Contributor

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

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