USD/JPY is printing lower lows and lower highs

USD/JPY traded lower yesterday after hitting resistance at 128.95. However, the rate hit support near 126.90, marked by the low of April 26^th, and then it rebounded somewhat. Overall, the pair remains below the prior upside line taken from the low of March 31^st, as well as below a shorter-term downside line, taken from the high of May 9^th. In our view, this paints a negative short-term picture.

We would expect the bears to take charge again at some point soon, and perhaps overcome the 126.90 zone. This could carry extensions towards the 123.45 level, marked by the low of April 6^th, or the 122.35 barrier, defined by the low of April 5^th. If neither barrier is able to stop the slide, then we could see a test near the 121.30 barrier, which provided strong support on March 30^th and 31^st.

Taking a look at our short-term oscillators, we see that the RSI rebounded from near its 30 line, while the MACD, although below both its zero and trigger lines, shows signs of bottoming as well. Both indicators detect slowing downside speed and suggest that some further recovery may be looming before the next leg south.

On the upside, we would like to see a clear recovery back above the pre-discussed upside line and the 133.80 zone before we get confident that the bulls have stolen all the bears’ swords. This could initially aim for the 135.15 zone, which provided strong support back in January and February 2002, and if it gets broken, we could experience extensions towards the high of September 1998, at around 137.40.