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200-hour SMA, around 135.60 might continue to cap the upside


4 July 2022

USD/JPY recovered a few pips from the daily low, though lacked any follow-through buying. Ascending trend-line breakdown and failure near the 200-hour SMA favours bearish traders. Mixed technical indicators warrant caution before confirming a near-term top for the major. The USD/JPY pair attracted some dip-buying near the 134.80-134.75 region on Monday and climbed to a fresh daily high during the early European session. The intraday uptick, however, lacked follow-through beyond the mid-135.00s and remained capped amid subdued US dollar price action.

Last week's sustained breakdown below a two-week-old ascending trend-line and a subsequent fall below the 200-hour SMA was seen as a key trigger for bearish traders. The latter, currently around the 135.60 area, should act as a pivotal point and determine the USD/JPY pair's intraday move.

Technical indicators, meanwhile, are still far from confirming a negative bias on the daily chart. This makes it prudent to wait for strong follow-through selling before confirming that the USD/JPY pair has topped out in the near term and positioning for any further depreciating move. From current levels, weakness below the 135.00 mark might continue to find decent support near the 134.80-134.75 region. This is closely followed by mid-134.00s, which if broken decisively would trigger fresh technical selling and make the USD/JPY pair vulnerable to slide further.

Spot prices might then break through the 134.00 round figure and accelerate the fall towards testing the next relevant hurdle near the 133.60 area. The corrective decline could further get extended towards the 133.00 mark before the USD/JPY pair drops to the 132.40-132.30 support zone. On the flip side, momentum beyond 200-hour SMA has the potential to lift the USD/JPY pair back above the 136.00 mark. Any further move up is likely to attract fresh sellers near the 136.60 heavy supply zone and fizzle out ahead of the 137.00 mark, or a 24-year high touched last week.

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