USD/JPY Forecast: Stuck In A Narrowing Price Range, Eyes Powell Testimony

The USD/JPY pair is stuck in a narrowing price range, but a breakout/breakdown could happen today post-Powell's testimony.

4-hour chart

The above chart shows-

• Symmetrical triangle (series of lower highs and higher lows).
• Momentum studies are mixed- 50MA has bottomed out, 100-MA and 200-MA are trending lower and could cap upside in the pair.
• The RSI is neutral.

Daily chart

• Previous day's recovery from 106.38 has left a higher low on the daily chart. The MACD shows the loss of bearish momentum. Thus, it appears the pair has bottomed out at 105.55.
• However, the descending trendline (drawn from the Jan. 8 high and Feb. 2 high) is intact, suggesting the bears continue to dominate the proceedings.
• Also, 100-day MA and 200-day MA bearish cross favors downside in the pair. Further, the 50-day MA is trending lower, indicating bearish setup.

The technical charts indicate a temporary low has been made at 105.55, but bullish revival is seen only above the descending trendline.

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Bullish scenario - Powell sees the need to hike rates three more times this year

The USD/JPY will likely see a convincing move above 108.00 (trendline resistance), confirming a bearish-to-bullish trend change and could test supply around 108.54 (38.2 percent Fib R of 113.39-105.55) and 109.00.

However, the pickup in the treasury yields (10-yr above 3 percent) may not bode well for the equities, hence, the uptick in the USD/JPY will likely be short-lived.

• Read: JPY Call bias has weakened in last few days. 

Bearish scenario - Powell sticks to the script of gradual rate hikes.

Equity markets have already factored-in this scenario, suggests the 400 point rally in Dow yesterday. However, currencies and bond markets have seen little action over the 24 hours. So there is plenty downside scope in USD/JPY if "tone of Powell's speech is cautious and he believes inflation or productivity is low".

A downside break of the symmetrical triangle seen on the 4-hour chart would open doors for a re-test of the recent low of 105.55.