USD/JPY continued to trade north on Monday, breaking above the resistance (now turned into support) territory of 112.65. That said, the advance was paused fractionally below our next hurdle of 112.90. On the 15th of October, the pair rebounded from the upside support line drawn from the low of the 21st of August, while the next day, it broke and closed above the short-term downside line taken from the peak of the 4th of October. All these technical signs, combined with the fact that the break above 112.65 has confirmed a forthcoming higher high on the 4-hour chart, suggest that the short-term picture has turned positive.
If the bulls are strong enough maintain their momentum and push the rate above 112.90, then we may see them driving the battle towards the 113.30 zone, defined by the peak of the 10th of October. Another break above 113.30 could see scope for extensions towards the 113.60 obstacle, which acted as the neckline of the head and shoulders formation that was completed on the 8th of the month.
Both our short-term oscillators detect upside speed and support the case for USD/JPY to continue trading north for a while more. The RSI rebounded from slightly above its 50 line and now looks to be heading towards 70, while the MACD lies above both its zero and trigger lines, pointing up as well.
Now, in case we see a retreat back below 112.65, we would still consider the near-term outlook to be cautiously positive. In our view, there would still be a decent chance for the bulls to take the reins from near the upside line drawn from the low of the 21st of August.
We would like to see a clear close below that line and the 112.00 zone before we start examining whether the bulls have abandoned the battlefield, at least in the near term. Such a dip could initially pave the way for the 111.65 level, marked by the low of the 15th of October, the break of which could confirm a forthcoming lower low and signal that the bears have taken the upper hand. Something like that could set the stage for the low of the 12th of September, at around 111.10.
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