Market Overview

USD/JPY Forecast: Squeeze Continues, Selling May Gather Pace Below 113.64

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It's the same old story for USD/JPY - the currency pair failed to hold on to gains above the 114.00 handle on Tuesday.

The currency pair fell to a three-day low of 113.64 in the Asian session today on reports that US Senate Republicans may delay the corporate tax cuts. However, by early Europe, the currency pair had regained some poise, despite the 10-year Treasury yield hovering at the three-week low of 2.3 percent.

As of writing, the currency pair is trading at 113.85 levels; down 0.14 percent on the day. So how long will the currency pair continue trading in a sideways manner?

As discussed in the previous articles, the odds are stacked against the bulls. The list of intermarket/fundamental and technical factors favoring a downside break continues to grow. For example-

  • The 10-year treasury yield slid further to a 3-week low of 2.3 percent.
  • A lower highs pattern established on the daily chart

Daily chart

screen_shot_2017-11-08_at_11.01.31_am.png

Lower highs pattern - 114.74-Nov. 6 high, 114.34-Nov. 7 high and 114.01 - today's high. As discussed yesterday, the daily chart is loaded with candlesticks showing bullish exhaustion, that too, near the resistance offered by the trendline sloping downward from the Aug. 2015 high and Dec. 2015 high.

An end of the day close below today's low of 113.64 (support offered by the trendline drawn from Oct. 16 low and Oct. 31 low) could prove to be the straw that broke the USD bulls' back. It would mark a downside break and shall open doors for 112.00 levels and 111.60 levels.

The longer the squeeze, the more violent is the post-breakout move. Thus, a break below 113.64 could yield a quick-fire drop to 112.00 levels.

On the higher side, only a weekly close above 114.18 (resistance offered by the trendline drawn from the Aug 2015 high and Dec 2015 high) would revive the bull run.

Posted-In: FXStreetForex Markets

 

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