USD/JPY opened the week with a negative gap, as virus concerns intensified, hitting support near the 108.73 zone. The pair rebounded during the Asian trading but found resistance near 109.14 and retreated again. Overall, the price structure on the 4-hour chart suggests a steep short-term downtrend, marked by a downside line drawn from the high of January 22nd. This, combined with the fact that the rate is also trading below all three of our moving averages, keeps the near-term outlook negative in our view.
That said, in order to get confident on the trend’s continuation we would like to see, not only a dip below today’s low of 108.73, but also a break below the 108.62 barrier, marked by the inside swing high of January 7th. This would confirm a forthcoming lower low and may initially pave the way towards the 108.26 zone, defined as a support by intraday swing lows formed on January 6th and 7th. The bears may decide to take a break after testing that zone, thereby allowing the rate to rebound somewhat. However, as long as it would stay below the aforementioned downside line, we would see decent chances for another leg down. If the upcoming negative wave results in the break of the 108.26 barrier, then we may see the bears aiming for the 107.82 level, marked by the low of January 7th, or even the 107.65 area, near the low of the next day.
Shifting attention to our short-term oscillators, we see that the RSI, already near its 30 line, has turned down and looks ready to fall back below that line. The MACD lies below both its zero and trigger lines, pointing south as well. Both indicators suggest strong downside speed and support the notion for some further declines in this exchange rate.
On the upside, we would like to see a clear move above 109.26 before we start examining whether the bear’s swords have been stolen by the bulls. This would also signal a break above the downside resistance line and may set the stage for extensions towards the peak of January 24th, at around 109.66. That said, in order to trust larger advances, we would like to see a break above the high of the day before, which also coincides with the inside swing low of January 21st. That’s the 109.77 barrier. If so, the bulls may decide to push towards the 110.10 hurdle, marked by the high of January 22nd, or the 110.22 zone, which provided strong resistance between January 14th and 21st.
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