USD/JPY Technical Outlook: How Much More Upside for the Japanese yen?

USD/JPY SHORT-TERM TECHNICAL FORECAST – NEUTRAL

The Japanese yen is testing a major ceiling against the US Dollar, a break above which could seal an interim low for the Japanese currency.

USD/JPY is now at an important crossroads – the September highs of 145.00-145.90. This support is crucial as the pair hasn’t broken below a previous high since the major ascent began earlier this year. Hence, a modest rebound wouldn’t be surprising. However, any potential rebound could be short lived.

USD/JPY Daily Chart

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Negative momentum divergence on the daily and weekly charts (rising price associated with falling momentum) at the October ceiling of 151.95 indicates that the multi-month rally is running out of steam,as we highlighted last week. Moreover, USD/JPY has run into a significant barrier on longer-term charts, including the 1998 high of 147.65, coinciding with the 200-quarter moving average and the upper edge of a rising channel from 2012 (see chart).

Any break of the 145.00-145.90 floor would at the very least confirm a short-term peak in USD/JPY, being the October high of 151.95. If it holds below the end-October high of 148.85, the odds of a break below 145.00-145.90 are growing.

USD/JPY Quarterly Chart

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Any break below 145.00-145.90 could open the door toward key converged support at the July high, coinciding with the 89-day moving average, at about 139.50-141.00, which could serve as a floor for another leg higher. Major support is on the 200-day moving average (now at about 132.50). The odds of a test of this support, at least in this move, appear to be trivial. In the event, USD/JPY were to test the long-term moving average, it would be a strong sign that the medium-term uptrend had changed. For now, though, the focus is on the 145.00-145.90 floor.

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