MUFG is proposing that 109.00 to 110.00 could be the market top for the present rally in the USDJPY. If this is the case, why has the pair stalled at a critical resistance that remains well below these levels?
A look at the daily chart shows that the present uptrend is very steep, which is a recipe for a correction that comes just as quickly if principles of technical analysis are followed. The steep rise has led to overbought conditions, which make the pair due for a correction.
However, following this correction, a period of uptrend resumption could be on the cards, following the poor GDP data put out by Japan. The Japanese economy grew by 2.8% in Q4 2020, which was less than the 3.0% expected by the market. This also represented a contraction of 20 basis points from the previous quarter’s GDP results.
The consensus is for the uptrend to resume after a period of correction. So what are the key price levels?
Technical Outlook for USDJPY
The likelihood of a correction has been enhanced by the active daily candle, which has formed a shooting star at the current resistance zone. Contrarians would be looking for an additional bearish outside day candle to take the pair back towards 107.824 initially, with a potential downside towards 106.998. 106.659 could also come into the picture.
On the other hand, further upside moves on the pair remains a valid proposition as long as US long-term bond yields continue to show a propensity to rise. This uptrend continuation is more likely to come from dip buying at any of the support levels mentioned with 109.70 and 110.137 being the ultimate targets for the bullish move. This is also in keeping with the projections of MUFG bank.
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USDJPY Daily Chart
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