- USD/JPY appears to have entered a bearish consolidation phase near two-month lows.
- The slightly oversold RSI on the daily chart helped the pair defend the 100 DMA support.
- Acceptance below the resistance turned support at 131.45 continues to favor the bears.
The pair USD/JPY It oscillates in a range around 131.00 in the middle of the European session and consolidates its recent drop to a two-month low.
The US dollar has bounced modestly from its lowest level since July 5, touched earlier this Tuesday, and offers some support to the USD/JPY pair. However, the recent narrowing of the yield spread between the US and Japan, coupled with the prevailing cautious mood, continues to support the Japanese yen as a haven. This, so far, has not helped spot prices to post a significant recovery.
From a technical point of view, the RSI (14) on the daily chart shows a slight oversold. This, in turn, helps the USD/JPY pair find some support near the 100-day SMA and halt its post-FOMC decline witnessed over the last week or so. That said, acceptance below a previous strong resistance point, around the 131.45 region, supports prospects for further losses.
The aforementioned resistance turned support should act as a pivot point, which if broken decisively could trigger short covering around the USD/JPY pair. Spot prices could accelerate the recovery move and reclaim the round 132.00 level. Follow-up buying beyond the 132.15 area would suggest that the recent decline has run its course and pave the way for further gains.
On the other hand, the bears could wait for a sustained break below the 100-day SMA, currently around the 130.20 region, before positioning themselves for an extension of the downside move. The USD/JPY pair could then turn vulnerable to weaken further below the key psychological 130.00 level and accelerate the decline towards the test of the next relevant support around the 129.60 horizontal zone.
USD/JPY daily chart
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Technical levels
Source: Fx Street
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