USD/JPY traded higher on Monday, after hitting support at 112.55 on Friday. Overall, the pair remains below the downside resistance line taken from the high of November 29th, but it also remains supported by the 112.55/75 zone. The last time we saw the pair below that zone was back on October 11th. With all that in mind, we will adopt a cautiously negative stance for now.
In order to get confident that the rate could drift further south, we would like to see a clear and decisive dip below 112.55. This will confirm a forthcoming lower low on the 4-hour chart and may see scope for declines towards the 112.10 barrier, marked by the inside swing high of September 30th. Another break, below 112.10, could extend the fall towards the inside swing high of October 6th, at around 111.75. If that barrier doesn’t hold either, then we could see the pair dropping towards the lows of October 6th and 7th, at 111.20.
Shifting attention to our short-term oscillators, we see that the RSI rebounded, but has started to flatten near its 50 line, while the MACD, although negative, still stands above its trigger line. Both indicators still detect negative momentum, but a slowing one, which makes us cautious over some further recovery before the next leg south. The flattening of the RSI suggests that the upside could still be halted near the downside line taken from the high of November 29th.
Alternatively, in order to start examining the bullish case, we would like to see a break above the 113.95 barrier, marked by the high of November 29th. The rate would already be well above the aforementioned downside line and it could initially travel towards the inside swing low of November 23rd, at 114.50. If the bulls are not willing to stop there, then they could climb towards the 115.25 level, or the 115.52 hurdle, defined by the inside swing low of November 25th and the peak of the day before.
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