Will The USD/JPY Break Above 2-year Long Downtrend Line?

The USD/JPY pair remains bid above 114.00, but is struggling to see a convincing break above Wednesday's high of 114.24 as the rally looks overstretched and needs a strong catalyst.

The upside move could gather pace if the US 10-year treasury yield moves above the Wednesday's high 2.475 percent. Still, the USD bulls need to be cautious as a weaker-than-expected GDP print (including weak consumption component) could derail the rally in the treasury yield and the US dollar.

Read - USD/JPY yearns for gains above 114.00 handle, needs a strong catalyst

On technical charts, the pair is closing in on a long-term falling trend line resistance.

Daily chart

• The trend line sloping downwards from the August 2015 high and December 2015 high is seen offering resistance around the 114.42 levels.
• A weekly close above the same would add credence to the higher lows pattern and shall signal revival/continuation of the rally from the June 2016 low of 98.79.

Will the pair break higher?

An upbeat US GDP figure could yield an upside break, in which case the resistance at 115.50 (April high) would be put to test.

However, the rally might stall around 115.00 as the daily RSI is fast approaching the overbought levels. The rally also looks overstretched if we take into account the fact that the weekly 100-MA is still sloping downwards and there is a big gap between the 10-day MA and price.

Furthermore, a bullish crossover between the 50-day MA and the 100-day MA is almost confirmed. The crossovers between the short-term MA and long-term MA usually work as contrarian indicators/tend to work with a time lag.

Thus, it is quite likely that a follow through to a potential break above 114.42 (trendline resistance) would be weak.

Bearish scenario - Weaker-than-expected US GDP could yield a pullback to 113.00 levels. The overall outlook remains constructive unless the 10-year treasury yield drops below 2.4 percent, in which case the USD/JPY pair re-test 200-day MA of 111.73.