- USD/JPY corrected sharply from two-decade highs reached this Wednesday.
- The overbought RSI prompted some profit taking ahead of the expected FOMC decision.
- The technical situation continues to favor the bulls and supports the possibility of buying on dips.
The pair USD/JPY saw a corrective pullback from the 24-year high reached this Wednesday, although the decline was halted near the 134.30 area. The pair quickly recovered a few pips from the daily low and was last seen trading just above 134.50, shedding 0.70% on the day.
The risk appetite boost, represented by a generally positive tone in equity markets, undermined the safe haven of the Japanese yen. Apart from this, the appearance of some dollar buying, reinforced by Fed expectations, turned out to be key factors that extended support for the USD/JPY pair.
From a technical point of view, the recent move higher in the last week has been along an uptrend channel and favors the bullish traders. That said, the overbought RSI (14) on the daily chart caused some profit taking ahead of the expected FOMC decision.
However, the situation supports the possibility of some buying on dips and warrants some caution before positioning for deeper losses. That said, some follow-through selling could drag the USD/JPY pair to test trend channel support, currently near the 134.00-133.90 area.
A convincing break below would suggest that the USD/JPY pair has formed a short-term top and trigger aggressive long-term trading.
On the other hand, immediate resistance lies near the 135.10-135.15 area, ahead of a multi-year high around the 135.55-135.60 area. The latter coincides with the upper limit of the aforementioned trend channel, which if broken decisively would be considered a new trigger for bullish traders.
The USD/JPY pair could then try to reclaim the 136.00 level and extend the upside path towards the next relevant hurdle near 136.50.
USD/JPY 1 hour chart
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Technical levels
Source: Fx Street
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