USD/JPY: Bullish exhaustion in minor uptrend ahead of US PCE inflation

• Today’s Asia session US dollar strength triggered by the first round of the US Presidential Election debate has started to dissipate ahead of US PCE inflation.
• The recent 11 days of rally seen in the USD/JPY has reached an overstretched condition.
• Short-term bullish exhaustion condition detected on the USD/JPY after a test on the 161.10 short-term pivotal resistance.

The earlier pop-up of the US dollar strength against the major G-10 currencies seen during today’s early Asian session, 28 June triggered by Trump’s better debate performance and protectionist vibes-based policies over Biden on the onset of the first live US Presidential Election debate has dissipated at this time of the writing.

Fig 1: 5-day of rolling performances of US dollar against major currencies as of 28 Jun 2024 (Source: TradingView, click to enlarge chart)

Based on the current 5-day rolling performances of the major currencies against the US dollar, the earlier outperformance of the USD against the Japanese yen has dwindled from an intraday peak of +0.91% printed in today’s Asian session to +0.51% during the European session (see Fig 1).

In the lens of technical analysis, the medium-term uptrend phase of the USD/JPY from 3 May 2024 low of 151.86 has reached an overstretched condition after 11 consecutive days of swift rallies in place since 13 June 2024

Overstretched rally condition detected

Fig 2: USD/JPY medium-term & major trends as of 28 Jun 2024 (Source: TradingView, click to enlarge chart)

The daily Bollinger Bandwidth of the USD/JPY has also risen rapidly from its 2-month low of 1.64 on 14 June 2024 to a current intraday value of 4.41 as of Friday, 28 June which suggests an increase in volatility that increases the odds of an imminent minor pull-back in the price actions of the USD/JPY within its medium-term and major uptrend phases (see Fig 2).

Short-term momentum is flashing bullish exhaustion condition

Fig 3: USD/JPY short-term trend as of 28 Jun 2024 (Source: TradingView, click to enlarge chart)

In the shorter-term time frame on the hourly chart, the 1-hour RSI momentum indicator flashed out a bearish divergence condition after the USD/JPY hit its 161.10 short-term pivotal resistance today.

A break below 159.90 near-term support may trigger a potential minor mean reversion corrective decline to expose the next near-term supports at 159.10 and 158.30/158.00 (also the rising 20-day moving average).

On the flip side, a clearance above 161.10 invalidates the mean reversion decline scenario to see the continuation of the impulsive upmove sequence for the next intermediate resistances to come in at 161.80 and 162.40.

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