USD/JPY Forecast: Focus on weekly close

USD/JPY defended the all-important 50-day moving average support yesterday, but so far the follow-through has not been encouraging. As of writing, the spot is trading at 110.91 (50-day MA), having faced rejection at the bearish 5-day MA earlier today. 

A daily close below the 50-day MA would signal a bull-to-bear trend change and would open the doors to deeper losses towards the 100-day MA, currently located at 109.67. Moreover, the spot has created higher lows along the rising 50-day MA in the last three months, making it a level to beat for the bears. 

The probability of a strong rebound from the 50-day MA is low this time as the previous rebound from the key MA witnessed in late July failed to yield a sustainable rally toward the cyclical high of 113.17. 

Further, the bulls have not been able to capitalize on the break above the long-term descending trendline witnessed in July, 

Weekly chart

As the above chart shows, the bull breakout seen in the first half of July was short-lived. The pair created an inverted hammer bearish reversal in the following week, neutralizing the bullish outlook and is set to end the current week below the trendline.

A break below the 50-day MA would validate the failed breakout seen in the weekly chart above and allow a drop below 110.35 (low of the big bullish candle which ran through falling trendline). 

A weekly close below 110.35 would confirm a bearish trend reversal on the weekly chart and could yield a deeper drop to 108.00 in a couple of weeks. 

On the other hand, a weekly close above the falling trendline will likely be followed by a re-test of the recent high of 11.17

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