USD/JPY Forecast: Bears Need Progress Soon, Potential Inverse H&S

SD/JPY bears need to attack the pair soon, else they could end up losing control to bulls in the short-term.

The corrective rally gathered steam as expected and the spot rose to 111.70. However, the lack of support from the treasury yields weakened the bid tone. Consequently, it is trading in the sideways manner around 111.50 as I write.

The technical studies indicate odds of a bullish move could strengthen further.

4-hour

The above chart shows-

• The 50-MA continues to lose altitude in favor of the bears. Hence, the exhaustion in the corrective rally is not surprising.
• However, the bullish price RSI divergence followed by a move above the falling trendline indicates the pair may have found a short-term bottom at 110.84.

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• Bears need progress soon, i.e. the support at 111.00 needs to be breached in the convincing manner today, else the spot may end up forming an inverse head and shoulders pattern with neckline resistance around 111.65 levels.
• A bullish inverse head and shoulders breakout would open up upside towards 112.46 (target as per the measured height method).

Again, a bullish breakout may yield long lasting gains only if the 10-year US Treasury yield jumps above 2.4 percent. Similarly, a downside break below the recent low of 110.84 would happen only if the treasury yields resume the drop.