What is happening to USD/JPY?

Down -2.7% month to date, July has erased June’s upside move (+2.3%) and is on track to potentially form a monthly outside reversal candle from resistance at ¥160.20, a level drawn from as far back as the 1990s. The selling is likely due to increased expectations of a Fed rate cut in September and an unwind in carry trades.

Monthly chart demonstrating scope to explore lower

Technically speaking, support calls for attention on the monthly chart at approximately ¥154.60, a channel resistance-turned-potential support line drawn from the high of ¥125.85. A break beyond here would pave the way for monthly support at ¥150.80. Adding to the bearish picture on the monthly timeframe is the Relative Strength Index (RSI), which is chalking up early negative divergence out of overbought territory.

The monthly chart, therefore, signals further selling could be on the table for the currency pair.

Daily support engulfed

Meanwhile, on the daily timeframe, today’s push south (down -1.1% as of writing) absorbed bids from support at ¥157.81, as well as trendline support extended from the low of ¥140.25, and the 50-day simple moving average (SMA) at ¥157.93. However, before sellers can venture towards daily support coming in at ¥153.78, the possibility of dynamic support exists nearby in the form of the lower Bollinger Band at ¥155.72, set to three standard deviations (default usually set to two standard deviations).

H1 resistance deserves attention

Shorter-term flow on the H1 timeframe reveals price action came within a whisker of greeting the ¥156.00 handle mid-way through London before moderately recoiling higher. With the US cash open now upon us, resistance between ¥157.39 and the ¥157.00 big figure might be watched for possible bearish scenarios (note that the area also houses two 38.2% Fibonacci retracement ratios).

So, although the longer-term trend is to the upside, a bearish play could be in the offing. With the monthly chart showing room to press south until ¥154.60, and daily flow yet to bump heads with the lower Bollinger Band, the H1 resistance between ¥157.39 and ¥157.00 may be a location that sellers welcome, targeting ¥156.00 and possibly beyond.