TA of the Day: Will USD/JPY Bounce After Sharp Sell-Off?

There was a significant decrease in USD/JPY Today after the release of weaker-than-expected US CPI data

Will USD/JPY bounce back after this sharp sell-off?

you welcome in Teaching Assistant for Today (Tauted)!

Here is the 4-hour chart:

Using the technical analysis concepts we covered in our Forex course, let’s analyze the USD/JPY pair.

Technical analysis of USD/JPY on 4-hour chart

Simple Moving Averages (SMAs)

• 200 simple moving averageThe price is currently at 158.63, which indicates that it is an important support level. The slope of the 200-day simple moving average is trending upwards, indicating long-term bullish momentum.
• 50 simple moving averageThe price is at the level of 161.12. The price is below this level, which indicates a possible downtrend in the short term.

If you are new to simple moving averages, read our Pipsology School lessons on simple moving averages.

Keltner Channel

• Keltner ChannelThe price moved below the middle line of the Keltner Channel (160.66), and the lower band (159.39), indicating a potential bearish momentum.

If you are not familiar with Keltner Channels, read our Pipsology School lessons on Keltner Channels.

Relative Strength Index

• Relative Strength Index (14)The current reading is at 25.77, which indicates that the market is in an oversold zone. This indicates a possible reversal or at least a temporary recovery.

If you are new to RSI, read our Pipsology School lessons on RSI.

Key Notes

Price movement:

• latest trendThe price was in an uptrend but recently saw a sharp sell-off, falling below the 50-day simple moving average. And Middle line of Keltner’s channel.
• SupportsThe price found support near the 200 SMA (158.63).
• resistanceBefore the decline, the price faced resistance near the upper channel line (161.85).

Support and resistance levels:

• SupportsImmediate support is at 200 SMA (158.63).
• resistanceIt is likely to be around the 50 Simple Moving Average (161.12) and the middle Keltner Channel line (160.66).

If you are new to the concept of support and resistance, read our Pipsology School lessons on trading support and resistance levels.

Relative Strength Index:

• The RSI is in the oversold zone indicating that selling pressure may be easing, and a reversal may be on the horizon.

Possible trade scenarios

The following trading scenarios are provided for educational purposes only. Since they do not include full risk management practices, they are not intended to serve as actual trading recommendations, but rather as food for thought to help you generate your own trading idea.

Long bias:

• Point of ConsiderationConsider entering a buy position if the price shows signs of support near the 200 SMA (158.63) or the lower Keltner Channel range (159.39) with confirmation from a bullish candlestick pattern or a bounce in the RSI from oversold levels.
• Point of cancellationConsider placing a stop loss below the 200 SMA at 158.63. Or even below the recent high low at 157.44.
• potential targetWe expect a move towards the 50-day SMA (161.12) and the middle Keltner Channel line (160.66) if the reversal gains momentum.

short bias

• Point of ConsiderationConsider entering a sell position if the price fails to stay above the 200 SMA (158.63) and shows signs of continued downward momentum, such as a strong bearish candlestick pattern or the RSI fails to break out of the oversold zone.
• Point of cancellationConsider placing a stop loss above the recent high at 161.124 to manage risk. This level is crucial as a break above it would invalidate the bearish setup.
• potential targetThe initial target could be the late June low (154.55). If the downward momentum continues, expect further decline towards 150.00.

TAOTD Summary

• directionThe trend was bullish, but recent sharp sell-offs and the price move below the 50 simple moving average and the middle Keltner channel line indicate a potential shift to bearish sentiment.
• Main levelsSupport at 158.63 (200 SMA), resistance at 161.12 and 160.66.
• PaidOversold conditions indicated by the RSI indicate a possible bounce, but if the price fails to hold support, further decline is possible.