Based on the article “USD/JPY Technical Analysis: The US Dollar Strength Runs Out of Steam” published on InvestingLive.com, originally authored by Walid Koudmani, here is a comprehensive and expanded version of the analysis, providing a technical deep dive into the USD/JPY currency pair. The focus remains on recent price action, patterns, indicators, and the broader macro context surrounding the pair.
USD/JPY Technical Analysis: Signs of Exhaustion Appear After Strong Rally
Original Author: Walid Koudmani | Source: InvestingLive.com
The USD/JPY currency pair has been on a substantial bullish run for several months, driven by stark divergences in monetary policy between the U.S. Federal Reserve and the Bank of Japan. However, recent price action suggests that the U.S. dollar may be losing momentum against the Japanese yen, with multiple technical indicators pointing to emerging signs of exhaustion.
This comprehensive analysis breaks down the key aspects governing the USD/JPY movement, provides a detailed look at chart formations, trends, and support/resistance levels, and evaluates what traders should watch out for in the coming sessions.
Recent Price Action and Market Sentiment
– USD/JPY has rallied from levels near 137.00 in mid-2023 to reach highs close to 151.70 in recent weeks.
– However, price action over the past few sessions has demonstrated increased volatility near this resistance area.
– The pair’s inability to convincingly break above the 151.90 historical resistance level raises concerns about whether bulls possess enough momentum to drive another leg higher.
– Recent indecision candles and tails on the daily chart suggest active selling pressure near the highs.
This consolidation is taking place despite robust economic indicators from the U.S., including favorable employment data and PMI reports. This disconnect signals that the pair might be approaching an inflection point.
Resistance Zone Near 152.00 Remains a Strong Barrier
– The 151.90–152.00 zone marks a significant technical barrier. Historically, this level served as a multi-decade top reached in October 2022 during the last phase of dollar strength.
– Price has approached this level several times over the past year but has failed to breach it, making it a psychological ceiling.
– Price rejection at this level suggests institutional selling pressure and the presence of profit-taking activity.
Consequently, short-term charts now indicate a potential pullback, especially if the pair fails to deliver a daily close above this level in the coming sessions.
Technical Indicators Suggest Overbought Conditions
Several momentum indicators now reflect overextended conditions in USD/JPY:
1. Relative Strength Index (RSI)
– On the daily chart, RSI hovers near the 70 threshold, often considered an overbought signal.
– A consistent failure to breach above this level could signal weakening bullish momentum.
2. Moving Average Convergence Divergence (MACD)
– The MACD histogram is beginning to narrow, and the signal line is flattening, signaling a slowing bullish trend.
– While not generating a bearish crossover yet, the loss of acceleration is a key warning sign.
3. Bollinger Bands
– Price has been hugging the upper Bollinger Band but is now moving slightly inward, indicating reduced momentum and potential mean reversion.
Bearish Divergence
– A bearish divergence is forming between price and RSI.
– While price action has made higher highs in recent sessions, RSI has produced lower highs.
– This decoupling commonly precedes reversals or consolidation phases.
Support Levels to Watch on the Dip
If a correction occurs, the following levels may offer support for the USD/JPY pair:
– 149.70–150.00: This psychological round number and prior resistance zone may now serve as initial support.
– 148.25–148.50: This zone corresponds to the 50-day moving average and past breakout level.
– 146.85–147.00: A key swing low and confluence
Explore this further here: USD/JPY trading.