Technical Analysis – USDJPY bulls test Japanese authorities’ resolve

Nov 1, 2023 at 8:52 am GMT- Achilleas Georgolopoulos

• USDJPY edges lower after Tuesday’s sizeable rally

• Heightened risk of intervention as USDJPY is comfortably above 150

• Mixed momentum indicators complicate the outlook

The lack of JPY-positive announcements at Tuesday’s BoJ meeting opened the door to a sizeable move in USDJPY. It bounced off the lower boundary of its medium-term upward trending channel and now trades comfortably above the 150 threshold. The pair is recording a red candle session today as the market is on the lookout for an actual intervention from the Japanese authorities.

In the meantime, the momentum indicators remain mixed. The Average Directional Movement Index (ADX) is stuck below its 25 threshold and thus pointing to a trendless market. On the flip side, the RSI has almost completed three months above its 50-midpoint, confirming the presence of a bullish tendency in the market.

Crucially, the stochastic oscillator continues to trade sideways, a tad below both its overbought territory and moving average, and thus revealing a degree of anticipation from market participants. Interestingly, the current higher high in USDJPY has not been met by a similar move in the stochastic oscillator; this raises the possibility of an overstretched upleg.

Should the bulls remain confident despite the intervention threat, they could try to keep USDJPY above the October 3 high at 150.15 and then gradually push it higher. They could then have the chance to record a new 2023 high and test the October 21, 2022 high at 151.94.

On the flip side, the bears appear somewhat relaxed as they anticipate an intervention from the Japanese officials. Until this takes place, they could try to push USDJPY below 150.15 level and then retest the busy 147.71-148.54 area, which is populated by the August 11, 1998 high and the 50-day simple moving average (SMA). Even lower, the 144.99-146.65 region could prove a stronger support area than currently anticipated.

To sum up, USDJPY bulls have made their move, pushing USDJPY comfortably above the 150 threshold, and are now preparing for the reaction from Japanese officials.