USD/JPY Forecast: Tinge of bearish bias

  • The bullish breakout remains elusive.
  • Could test the descending 50-day moving average (MA) lined up at 106.77.

The USD/JPY continues to have a tough time holding on to gains above the key resistance of 107.49 (April 5 high).

The pair picked up a bid on Friday and jumped to 107.78 - the highest level since Feb. 22, however, by the day's end the pair had fallen back to 107.34. The resulting candle with a long upper shadow indicates bullish exhaustion.

The story in Asian session is not different. Russia condemned the US-led missile strikes in Syria, but the much-feared retaliation did not come through. Consequently, the risk assets found bids in Asia and Japanese Yen suffered losses in the early Asian session, pushing the USD/JPY higher to 107.61. But, once again a break above 107.49 was short-lived, possibly due to losses in the Chinese stocks and the pullback in the S&P 50 futures.

Daily chart

The repeated failure to hold above 107.49 despite the bull flag breakout indicates the rally from the low of 104.63 has run out of steam and could yield a sell-off to 106.76 (50-day moving average).

The 5-day moving average (MA) and the 10-day MA is biased bullish, so the drop to 106.76 could be short-lived.

That said, a daily close below 107.45 would signal rising wedge reversal (bearish revival). Also, a close below 107.20 would confirm a bearish doji reversal (bearish revival). In both cases, the USD/JPY risks revisiting 105.20s.

A weaker-than-expected US retail sales, coupled with risk-off in stocks could easily push the spot below 105.20s.

On the higher side, only a daily close above 10749 would signal bull breakout and open doors for a sustained rally to 108.28 (Feb. 21 high) and 109.00.

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