- Positive news about the COVID-19 vaccine prompted aggressive short coverage around USD / JPY.
- A four-month downtrend line could limit any subsequent movement beyond 105.00.
- Mixed technical indicators on the daily / 1 hour charts further warrant caution for bullish trading.
The pair USD/JPY witnessed an aggressive short-coverage move on Monday and was being backed by the latest optimism about a possible vaccine for the highly contagious coronavirus disease. Strong intraday momentum drove the pair to three-day highs, and the bulls are now expecting some subsequent buying above the key psychological level of 105.00.
From a technical perspective, any subsequent positive movement is likely to face strong resistance near a four-month downtrend line. The mentioned barrier is currently pegged near the 105.35-40 region, which coincides with last week’s swing highs and should now act as a key point for the short-term trajectory of the USD / JPY pair.
Meanwhile, the technical indicators on the daily chart have yet to catch up with the strong intraday recovery move and overbought conditions already swing on the 1 hour chart. The setup warrants some caution for bull traders and positioning for any further appreciation moves, so it is prudent to expect a sustained move past the trend line hurdle.
On the other hand, the 104.45-30 congestion zone now appears to protect the immediate downside. Failure to defend such a level of support will nullify the prospects for any further positive movement and will instead generate new technical selling. The USD / JPY pair could become vulnerable to slide back below 104.00 and accelerate the slide towards the 103.35 region.
Daily chart
Credits: Forex Street
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