USD/JPY Forecast: RSI Favors Drop To 105.00

The USD/JPY pair could test 105.00 levels this week, the daily relative strength index (RSI) indicates and looks set to break lower irrespective of the tone of the Fed policy.

• The 14-day RSI has breached the ascending trendline and is now biased bearish (below 50.00 and pointing southward).
• The chart shows the pair created another lower high (at 107.29) along the descending 21-day MA (moving average) last week.

Further, the RSI is biased bearish on the weekly and monthly chart. So, the odds look stacked in favor of a drop to 105.00. A break lower would allow Yen bulls to push the pair down to 101.19 - starting point of the Trump rally.

JPY set to rally irrespective of the Fed's policy tone

The greenback will likely surge across the board if the Fed puts more stress on the inflationary impact of trade wars (protectionist policies). However, hawkish Fed may also push the 10-year treasury yield above 3 percent, triggering risk aversion in the stocks. 

Hence, the USD/JPY pair will likely fade the post-Fed spike and drop below 105.00 in the subsequent days. The view gels well with the bearish set up as indicated by the descending weekly 5-MA and 10-MA.  

Meanwhile, a dovish Fed could yield a broad-based USD sell-off and immediately push USD/JPY pair below 105.00.