USD/JPY Forecast: RSI signaling overbought conditions for the first time since July

The rally in the USD/JPY pair is looking overstretched for the first time since mid-July, as a result, the pair could consolidate or witness a minor pullback in the next few days before building on the long-term bullish breakout.

Currently, the pair is trading at 113.76, having clocked a 10.5-month high of 113.85a few minutes before press time.

The Japanse yen took a hit in September on rising US rates and increased foreign bond purchases by Japanese investors, the net result being a pennant breakout on the monthly chart.

Technically speaking, the bull run from the September 2012 low of 77.12 has resumed and hence the spot looks set to test the inverse head-and-shoulders neckline resistance of 126.70 in the next 12 months.

That said, in the short-term, the upside may remain capped around 114.00 as key technical indicators are reporting overbought conditions.

Daily chart

As can be seen, the relative strength index (RSI) has moved 70.00, in overbought territory, for the first time since mid-July. Further, slow stochastic is flat lined above 80.00, signaling the rally is overdone for now. The big gap between the MACD line and signal line is also echoing similar signals.

Hence, the pair could have a tough time holding above 114.00 in the short-term and may revisit the ascending 10-day EMA support, currently located at 112.96.

Monthly chart

The outlook as per the monthly chart would remain bullish as long as the pair is holding above August 2018 low of 109.77.