A pause at the 20 EMA points to a minor retracement near 127.50

• Inventory distribution at multi-year highs has led to a pullback in USD/JPY.
• The advance of the EMA to 100 continues to support the uptrend.
• A pullback towards the trend line could attract possible buying of the pair.

The USD/JPY pair is pulling back at the start of the European session on Wednesday on profit taking after hitting a 20-year high at 129.41 earlier in the day. The pair has seen some bullish movement in recent weeks after breaking out of the 113.48-116.35 consolidation range in mid-March. The pair is now pulling back as the momentum oscillators turned into overbought territory which has led to a slight correction in the pair.

In the 1 hour chart, USD/JPY has fallen after seeing a distribution of inventories in a narrow range of 128.97-129.41. An inventory distribution at multi-year highs indicates a shift in inventory from institutional investors to retail participants. The trend line from Thursday’s low at 125.09 and Monday’s low at 126.44 will act as important support going forward.

The pair has dipped below the 20-period exponential moving average at 128.66, which indicates short-term weakness. While the 100-period EMA at 127.50 is moving higher, which indicates that the long-term uptrend is still intact.

The RSI (14) has dropped to a range between 40.00-60.00 from the bullish range of 60.00-80.00, which calls for a pullback.

A drop to trend line support near 127.50 will trigger dollar bulls, which will push Tuesday’s high at 129.41, followed by a two-decade high at 130.67.

On the other hand, a deeper pullback could be seen if USD/JPY falls below Monday’s low of 126.24, which will send the pair to Thursday’s low of 125.09. A break of the latter will drag the pair to the April 10 low at 124.04.

USD/JPY 1 hour chart