Seldom has the 100-day simple moving average (SMA) been so important in any market as it is for the USD/JPY pair.

This is because, throughout 2018, the long-term moving average has reversed pullbacks in the pair. As seen in the chart below, the pair scaled the 100-day SMA hurdle on April 25 and has since then charted higher lows along the SMA support.

Daily chart

The above chart also shows that a rebound from the 100-day SMA has ended up creating a fresh higher high more often than not. For instance, the pair found takers around the 100-day SMA  on May 29 and went on to set a higher high of 113.18 (July 19 high) before falling back to the SMA support. On similar lines, the pair carved a higher high at 114.54 last month, having bounced off the 100-day SMA in September.

The pair's recent bounce from the 100-day SMA witnessed on Oct. 26, however, ended up carving a lower high at 114.23. While that is a cause for concern, a bearish reversal is still not confirmed as the spot is yet to breach the 100-day SMA support, currently at 112.08.  

As seen in the chart, the bears have persistently failed to breach the long-term SMA support on the daily closing basis. Therefore, a bullish-to-bearish trend change would be confirmed if the spot closes below the 100-day SMA. The breakdown, if confirmed, would open the doors for a deeper sell-off to levels below 110.00.

Notably, the likelihood of the pair finding acceptance below the 100-day SMA in the next few days is quite high as:

  • Markets have begun pricing in the possibility of a Fed rate hike pause in 2019. Fed's Powell took note of the domestic and overseas risks to the US economy forcing many to question the central bank's commitment to raising rates three times in 2019.
  • The US 10-year treasury yield is threatening a double top breakdown. The bearish pattern, if confirmed, could drive the USD lower across the board.
  • The USD/JPY bulls have likely run out of steam as indicated by the pair's failure to create a higher high above 114.55 despite the strong bounce from the 100-day SMA, as seen on Oct. 26.

At press time, the pair is trading at 112.79, having clocked a low of 112.30 yesterday.

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