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USD/JPY Rate Breakout Brings April High on Radar

Japanese Yen Talking Points

USD/JPY extends the rebound from the monthly low (105.99) as Federal Reserve Chairman Jerome Powell tames speculation for a negative interest rate policy (NIRP), and the technical outlook brings the April high (109.38) on the radar as the exchange rate breaks out of a bearish trend.

Technical Forecast for Japanese Yen: Bearish

The technical outlook for USD/JPY suggests the exchange rate will continue to consolidate following the sharp moves from earlier this year as the 200-Day SMA (108.24) tracks a flat slope.

A downward trending channel took shape in April as the advance from the March low (101.18) failed to produce a test of the 2020 high (112.23), with the Relative Strength Index (RSI) exhibiting a similar behavior during the previous month.

However, the break of the bearish formations in both price and the RSI may fuel the rebound from the May low (105.99) as USD/JPY clears the high from the first week of the month.

In turn, USD/JPY may continue to retrace the decline from the April high (109.38) as the bearish momentum abates.

USD/JPY Rate Daily Chart

USDJPY chart

Source: Trading View

USD/JPY breaks out of the descending channel following the failed attempt to test the 105.80 (61.8% expansion) region, with the move above 107.20 (61.8% retracement) opening up the Fibonacci overlap around 108.00 (23.6% expansion) to 108.40 (100% expansion), which incorporates the 200-Day SMA (108.24).

The next area of interest comes in around 109.40 (50% retracement) to 110.00 (78.6% expansion) as it lines up with the April high (109.38) followed by the overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement), which largely coincides with the March high (111.72).

However, USD/JPY may trade within a more defined rang if it fails to extend the recent series of higher highs and lows, with a move below the 106.50 (50% expansion) to 106.70 (38.2% retracement) region bringing the 105.80 (61.8% expansion) area on the radar.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong