USD/JPY: Bearish Breakout Seen But Risk Of “Fakeout” High

Hourly Chart
USD/JPY Hourly" title="USD/JPY Hourly" height="630" width="987">
USD/JPY attempted to forge a new 7 month high today but failed to make a significant impact, with prices dipping heavily after hitting a high of 103.387, 0.8 pips higher than the high of 3rd Dec. It is interesting to see prices moving so much right now when newswires are mostly silent. Hence, it is likely that the decline is a result of technical bears picking tops and not a shift of sentiment about USD/JPY. Even though prices have broke below the Channel Bottom, there is no guarantee that bearish follow-through will be strong, and prices could even reverse back higher into the rising Channel and invalidates this breakout as a "falsie".

This notion is supported by Stochastic with Stoch curve currently amidst a bearish cycle. Stoch readings are below 60.0 "support" level but we are still around the lows of Monday where Stoch curve reversed higher - timing where prices rebounded off 103.0 and gave us the highs today. Hence, do not be surprised if we actually see Stoch curve reversing higher right now and see prices push up back within the Channel. Furthermore, there is a divergence between prices and Stoch curve, where price is pushing higher but Stoch is moving lower. This suggest that the bearish momentum may be a little bit too aggressive based on recent price action, which increases the chance of bullish reversal moving forward - limiting bearish follow-through and diminishes chances of a 103.0 break.

Weekly Chart
USD/JPY Weekly" title="USD/JPY Weekly" height="630" width="987">
Bullish momentum is still ongoing on the Weekly Chart, but the pace of bullish momentum is undoubtedly slower compared to before as evident via the smaller candle body as we approach 2013 High of 103.75. Stochastic readings tell us the same thing as well, with Stoch curve flat and looking likely to cross the signal line lower. However, there is no evidence that price is heading lower right now and traders should seek further confirmation as long-term pressure remains on the bullish side. Should the bearish reversal is confirmed, rising trendline will open up as a viable bearish objective but further bearish headway below the trendline will require further confirmation and preferably be fundamentally driven as BOJ influence and broad risk appetite still favor extended Yen weakness.

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