USDJPY Bearish Channel Resistance Test

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USDJPY is trending lower on its 4-hour time frame as price formed lower highs and lower lows inside a falling channel. The pair looks ready for a test of the resistance next.

The top of the channel lines up with the 61.8% Fibonacci retracement level, which already seems to be keeping gains in check. This is also in line with a former support area that could now hold as resistance.

Also the 200 SMA coincides with the channel top to add to its strength as a ceiling. The 100 SMA is below this slower-moving MA to confirm that the path of least resistance is to the downside. In other words, the selloff is more likely to resume than to reverse. The gap between the moving averages is also widening to reflect strengthening bearish momentum.

RSI is already in the overbought region to signal exhaustion among buyers and is starting to turn lower to signal that sellers are taking over. Similarly stochastic made it to the overbought zone, so buyers could take a break and let sellers regain the upper hand.

In that case, USDJPY could slip back to the swing low around 104.25 or to the 104.00 handle closer to the channel support.

The US dollar has the NFP report to contend with later in the week, although leading indicators could provide clues on how the jobs figure for July might turn out. Note that the June reading turned out to be a positive surprise, so revisions might be in the works or a reduction could follow.

The ISM PMI readings are due throughout the week, so traders might react to the jobs components of the manufacturing and non-manufacturing surveys prior to the actual NFP release. The ADP non-farm employment change reading could also spur additional dollar volatility.

 

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