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USDJPY bulls might be in trouble here. While it is true that the current rally that began last month is still intact, the bullish momentum has tapered substantially.
On top of that, Friday’s bearish rejection candle from 114.35 resistance suggests an influx of offers in the region. We expect from an area that capped advances in both May and July, but the lack of demand to offset those sell orders may be telling.
I’m by no means bearish the U.S. dollar. I remain short the EURUSD and have no intention of exiting just yet.
However, I don’t believe that the USDJPY is the best pair to demonstrate a bullish USD stance. In fact, it may be the worst pair to do that at the moment. It seems the Japanese yen is keeping pace with the greenback step for step.
A look at the technicals shows a key support area that begins at 113.15 and extends toward last week’s lows at 113.30. The former level is one we discussed on October 18 when the pair was trading at 112.97.
As long as buyers keep prices above 113.15 on a daily closing basis (5 pm EST), the bullish scenario must be respected. If buyers fail to do so, there’s a high chance of a move back toward 111.60 and perhaps even the range lows near 108.20.
We may also have a trend line in play that extends from the September 8 low and connects with the October low at 111.65. But at the moment it’s unclear whether or not this level will become a factor.
Key resistance comes in at 114.35 followed by 115.40. A move lower would likely encounter an influx of buying pressure at 113.15/30 followed by 111.60 and 110.22.
Keep in mind that the implications of this range break will overflow to other Japanese yen pairs. That includes the EURJPY that we discussed over the weekend. While it isn’t a pip-for-pip relationship, the direction of the USDJPY does tend to spill over to its counterparts.