USD/JPY Forecast: Re-test of 111.69 likely as yield spread drops below 50-DMA

The Dollar-Yen pair 111.69 in the NY session before recovering in Asian session to 112.14, tracking the rebound in the 10-year treasury yield from its 50-DMA support. The rebound could be short lived as the spread or the difference between the US 10-year treasury yield and the Japanese 10-year government bond yield fell below 50-DMA on Tuesday. 

US-Japan 10-year yield spread

The yield spread may narrow further in favor of the Japanese Yen if the US housing starts and building permits number disappoints expectations. 

Technicals

Resistance

• 112.32 (38.2% Fib R of 108.80-114.49 + 1-hour 50-MA)
• 112.40-113.47 (falling channel resistance on 4-hour chart)
• 112.67 (1-hour 100-MA sloping downwards)
• 112.87 (July 17 high on 4-hour chart)

Support

• 111.80 (50-DMA), 111.77 (100-DMA), 111.74 (200-DMA)
• 111.65 (50% Fib R of 108.80-114.49)
• 111.35 (falling channel support on 4-hour chart)
• 111.00 (psychological figure)

4-hour chart

Observations

• Falling tops formation
• RSI still not oversold, suggests room for further losses in the pair
• 50-MA, 100-MA topped out, bearish crossover likely

Daily chart

Observations

• RSI has turned bearish
• Potential bearish crossover between 50-MA & 100-MA, 50-MA & 200-MA

Comments

• The spot looks set to re-test previous day’s lows around 111.65 and possibly breach the support zone around 111.70 on an end of the day closing basis in favor of 110.90. (110.98 is 61.8% Fib R of 108.80-114.49 and 110.93 is 161.8% Fib ext of 114.49-112.86-113.58). 
• Only a bullish break of the falling channel would signal bearish invalidation, although on a larger scheme of things, the outlook remains bearish as long as the US-Japan 10-year yield spread remains below the 200-DMA level of 2.3%.