USD/JPY bulls not convincing enough in test of resistance

• USD/JPY bulls struggle to make headway above critical support.
• 106 is key on the upside, although the USD could well start to give back some ground.

USD/JPY is starting out the week on the offer with repeated failures through the critical resistance around the mid-point of the 105 area. 

There are a number of factors in play from a fundamental point of view, but the technician would argue that it is too even a playing field in that respect.

The technical analysis below offers a clearer picture at this juncture. 

Meanwhile, the run-up to the US elections, by USD/JPY's track record, would play into the bear's hands, although concerns over the coronavirus will balance out the scales, supporting the bullish case for the greenback. 

As it stands, both currencies can be argued to offer safe haven qualities, strongly correlated to the performance of global equities.

From a near-term perspective, USD/JPY rose from 105.25 to 105.70 on Friday with little fresh news in the way of a catalyst for the end of the week. 

The ongoing stimulus sentiment, coronavirus updates and various data inputs will be in the driving seat for the week ahead.

However, there is little scheduled that is likely to shift the pair in a meaningful direction one way or the other, perhaps until the end of the week's Nonfarm Payrolls. 

''Payrolls probably rose fairly strongly by pre-COVID standards, but with the pace slowing again, and the level still down around 11mn since February'',

analysts at TD Securities explained. 

We are assuming a 200k decline in government payrolls, due largely to weak education hiring at the start of the school year. More positively, the initial manufacturing survey data for September point to another solid ISM reading.

USD/JPY technical analysis

From a technical standpoint, the price is giving the clearest possible outcomes at this juncture.

We have seen the makings of a fakeout on the weekly chart as follows:

However, last week's close was hardly convincing on the bid back above stricture and the bulls still have their work cut out. 

On the daily chart above, the resistance now turned back to support is a critical level and the market is bearish below it, while neutral above it. 

Only until the bulls get a firm grip above 106 the figure will things start to become clearer. 

A sizeable rebound could be in order above 106.

Indeed, the DXY has perked-up in recent weeks.

The reverse head and shoulders is a compelling pattern on the higher time frames in the DXY:

However, a downside correction is expected before a continuation which would coincide with yen strength in the days or weeks to come.