USD/JPY Forecast: RSI overbought for first time since May, time for a pullback?

Omkar Godbole FXStreet Contributor

The Dollar-Yen pair rose to a two-month high of 114.20 after the Bank of Japan (BoJ) Governor Kuroda said the central bank would run QQE and yield curve control policy for as long as required… to achieve the 2% inflation target. It means the BoJ would boost its bond purchases every time there is upward pressure on the JGB yields due to overseas forces.

The 5-year Japanese government bond yield jumped today to its highest since January 2016. This might force the BoJ to step-in - increase its purchases of 5-year bonds. No wonder the Japanese Yen is under pressure.

However, technicals suggest the rally may be done for now. The 14-day RSI is overbought for the first time since Jan 2016.

Daily chart

Resistance: 114.36 (May high), 114.64 (61.8% Fib R of Dec high - Apr low), 115.00 (zero levels), 115.50 (Mar 10 high)

Support: 113.86 (session low), 113.56 (5-DMA), 113.40 (50% Fib R of Dec high - Apr low), 113.00 (zero levels)

Observations

14-day RSI overbought
MACD shows loss of bullish momentum
5-DMA & 10-DMA are still sloping upwards
50-DMA & 100-DMA bullish crossover

Commentary

Technical pullbacks are likely to be short lived, given the dovish BoJ and the upward sloping 5-DMA and 10-DMA. Only two consecutive daily close below 10-DMA would signal the top has been made. Consolidation looks likely, while bullish move is seen gathering pace again if the spot ends with the day above the May high of 114.36.

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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