Market Outlook

Chart of the week – USD/JPY steep rally may see a setback soon

Chart of the week – USD/JPY

USD/JPY steep rally may see a setback soon

Short-term technical analysis

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Source: CMC Markets

Time stamped: 20 Mar 2021 at 10:30 am SGT

  • The recent 4-week steep rally of 436 pips seen on the USD/JPY from its 23 February low of 104.92 to its intraday high of 109.32 printed on 18 March has reached a major descending trendline that has capped previous rallies since June 2015 swing high of 125.85 now acting as a resistance at 109.30.
  • Its price action for the week ended 19 March has formed a weekly “Spinning Top” candlestick pattern which indicates hesitation by the bulls to push prices higher. This observation indicates a potential sign of bullish exhaustion where price action may shape at least a short to medium-term bearish reversal at this juncture.
  • The 4-hour RSI oscillator, a gauge on short-term price action momentum has shaped a bearish divergence signal at an extreme overbought zone earlier on 9 March and it broke below a significant corresponding ascending support on 18 March. As at the end of Friday, 19 March US session, it has yet to reach an extreme oversold level which suggests short-term momentum has shifted potentially to the downside.
  • As long as the 109.30 short-term pivotal resistance is not surpassed, the USD/JPY may see a potential drop to test the 108.15 intermediate support and a broke below 108.15 is likely to reinforce a potential further setback to target the next support at 106.70 in the first step (close to the ascending trendline in place since 6 Jan 2021 low & the 38.2% Fibonacci retracement of the current up move from 6 Jan 2021 low to 18 Mar 2021 high).
  • On the other hand, a daily close above 109.30 invalidates the bearish scenario for a further squeeze up towards the 109.85 long-term pivotal resistance.