USD/JPY Tumbles After Hitting Resistance at 110.85

USD/JPY traded lower on Thursday. The slide started on Wednesday, after the rate hit resistance at 110.85. Looking at the price structure on the 4-hour chart, we see that the pair has been printing higher peaks and higher troughs within an upside channel since the 29th of May. So, despite the latest slide, as long as the pair continues to trade within the channel, we will consider the short-term outlook to be cautiously positive.

We still see a decent chance for the bulls to take charge from near the 109.85 support, or the lower end of the channel, and perhaps drive the battle up for a test near 110.65. However, we would like to see a clear break above 110.85 before we get confident on more upside extensions. Such a move would confirm a forthcoming higher high on the 4-hour chart and is possible to pave the way for the 111.20 obstacle, defined by the peak of the 22nd of May.

Looking at our short-term oscillators, we see that the RSI slid and crossed below its 50 line, while the MACD, although positive, lies below its trigger line and looks to be heading towards 0. What’s more, there is negative divergence between the RSI and the price action.  These signs suggest that the rate could continue sliding for a while more.

Having said that though, we would like to see a decisive break below 109.85 before we abandon the bullish case, at least for the near term. Such a dip would signal the downside exit out of the channel and could initially target our next support of 109.55. Another break below 109.55 could carry more bearish extensions, perhaps towards the 109.25 zone, fractionally above the low of the 8th of June.

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