USDJPY – Did Dollar Made A Major Top?

Key Takeaways

• The US Dollar has been trading higher against the past several months and also tested the 125.00 handle.
• However, it looks like the US Dollar may have created a major top against the Japanese Yen if we look at the higher timeframe chart like the monthly chart.
• There were a couple of failures noted around the 125.00 handle, and the price action clearly suggests that the USDJPY pair may be creating a long term top for the upcoming months.
• The only positive to see this year for the US dollar is the fed hiking rates.

USDJPY Technical Analysis

Let us start by looking back and how a bottom was formed in the USDJPY pair. After a monstrous decline towards the 75.00 support area in the 2010-2012 period, the pair started to form a base. Once the base was formed, and the BOE started easing the upside rally started in the pair.

There was a nasty rally and almost all of sellers were outpaced in the ride. The first stop was around the 100 area, which was obvious. The stated level represents a major handle and acted as a resistance for a small period. However, buyers eventually succeeded in breaking the stated level and traded higher.

The most important part of the ride was the fact the pair settled above the 100 simple moving average on the monthly chart. This was not all, the pair settled above the 200 simple moving average on the monthly chart as well.

Overall, the ride was convincing, as the pair also broke a bearish trend line on the same chart. Now, the pair has finally made a stop near the 125.00 area. The stated level is acting as a monster barrier, as can be seen from the monthly chart.

There were more than a couple of bearish candles formed below the same level, suggesting the fact that the buyers are finding it hard to break it.

If we look at the monthly RSI, then there is a possible divergence in the making. The last to last top was around the 135.00 level where the monthly RSI was around the 67 level. Now, the current possible top is around the 125.00 area, but the monthly RSI is at 80 level.

So, it means there is a possible divergence in the making, and if it plays well may push the USDJPY pair down in the medium to long term. The divergence forming is on the monthly chart, which means we can see the pair declining for a few months moving ahead.

However, if the pair moves down, we should not see it as a part of bearish wave. It should be seen as a corrective move. The US Dollar may not move down to a great extent, as the Fed recently started raising interest rates, and they may continue to increase in the near future.

The most important support on the downside for the pair can be around the 200 simple moving average on the monthly chart. It is coinciding with the 38.2% Fib retracement level of the last move from the 75.50 low to 125.00 high.

In short, a correction is possible, but sellers need not to get excited and underestimate the US Dollar buyers.

This article is supplied by Nick James from Forex Bonus Lab.