USDJPY reached an important resistance level at 160 but remained below this level for the second day in a row, as traders remain very cautious after the previous intervention began in this area and Japanese officials today reiterated their readiness to intervene again.
This idea was supported by comments today from the Governor of the Bank of Japan who highlighted the increased risk of inflation as a result of the energy shock triggered by the war in the Middle East and which reinforced expectations of a rate hike at the central bank’s June meeting.
Initial signals of a potential stop to the larger rally are developing on the daily chart (stochastic in overbought/bearish 14-day divergence) and contributing to a 160 area scenario capping the rise from 155.02 (May 6 low), as today’s action is so far shaping up into a hanging man candle that also represents an initial reversal signal.
On the other hand, today’s declines were contained by the first support (daily Tenkan-sen at 155.38) and the near-term move is expected to maintain a bullish bias while holding above the daily cloud (high at 159.03), but the cloud starts to retreat from tomorrow and will be volatile next week which may attract new bears.
Look for an initial negative signal on the daily Tenkan-sen violation, which will be reinforced when prices fall to the daily cloud.
On the upside, a breach of the 160 barrier cannot be ruled out, although rallies are likely to be limited (as in previous attempts in March/April) due to ongoing intervention threats.
Accuracy: 160.00; 160.45; 160.72; 161.00
SOP: 159.38; 159.00; 158.54; 157.87
