In Search of a Direction

US Dollar, Japanese Yen, USD/JPY – Technical Outlook:

• USD/JPY’s losses have stalled this week.
• Does it mean that the short-term decline is over?
• What scenarios could play out and what are the signposts to watch?

USD/JPY SHORT-TERM TECHNICAL FORECAST – NEUTRAL

After an explosive price-action packed last week, USD/JPY has been essentially directionless this week. It is now at a crucial crossroads – a break above key resistance that it is now testing could mean the resumption of its well-established uptrend. On the other hand, a break below this week’s low could open the door for more losses in the short term.

USD/JPY Daily Chart

Chart Created Using TradingView

Losses in USD/JPY have stalled after it hit a 10-week low of 137.70 on Tuesday. The pair is flirting with a cushion on a horizontal trendline from July, at about 139.50, including the 89-day moving average. So far, it is unclear ifscenario 1 outlined on Sundayis unfolding — a drop to 137.00-138.00 before setting a floor for another leg higher. That’s because it is not clear yet if this week’s pause in the slide is a precursor to a reversal or a lag before the next leg lower.

For scenario 1 to play out, USD/JPY needs to rise above immediate resistance at Monday’s high of 140.80. Such a break could open the door for a rise toward 142.80-143.00, possibly toward 145.00-145.90.

USD/JPY 240-minutes Chart

Chart Created Using TradingView

Until the USD/JPY cracks above 140.80, it may be too soon to conclude that the low is in place for USD/JPY. That is, the possibility of a drop toward the 200-day moving average (now at about 133.35) would remain very much alive (scenario 2). In this regard, the immediate floor is at Tuesday’s low of 137.70. A break below this week’s low could pave the way towards the long-term moving average.

— Written by Manish Jaradi, Strategist for DailyFX.com