USD/JPY Technical: Potential countertrend USD corrective rebound on the horizon

• The medium-term downtrend phase of USD/JPY in place since the 15 November 2023 high has reached a potential inflection level at 140.25.
• A potential countertrend corrective rebound scenario may unfold next.
• Watch the first immediate resistance zone at 142.85/143.40.

This is a follow-up analysis of our prior report, “USD/JPY Technical: JPY strength remains intact ahead of BoJ” published on 19 December 2023. Click here for a recap.

The price actions of USD/JPY have plummeted lower as highlighted in our prior report despite the lack of monetary policy guidance for an imminent removal of Japan’s short-term negative interest rate in Q1 2024 during the Bank of Japan (BoJ) Governor Ueda’s press conference for BoJ’s recent monetary policy meeting held on 19 December 2023.

All in all, the USD/JPY has shed a total of 1,166 pips (-7.7%) from a 33-year high of 151.91 printed on 13 November 2023 to an intraday low of 140.25 on 28 December 2023 in the ongoing medium-term downtrend phase in place since 13 November 2023 high.

Medium-term downside momentum has flashed out of exhaustion condition

Fig 1: USD/JPY medium-term trend as of 2 Jan 2024 (Source: TradingView, click to enlarge chart)

The medium-term downtrend of the USD/JPY is still firmly intact as depicted by its price actions that are still trading below the downward-sloping 50-day moving average that is now acting as a medium-term resistance at around 146.70 (also coincides closely with the 50% Fibonacci retracement of the medium-term downtrend from 13 November 2023 high to 28 December 2023 low).

The daily RSI momentum indicator has just flashed out a bullish divergence condition after it hit its oversold region (below 70) on 14 December 2023. These observations suggest that medium-term downside momentum may have been exhausted which reduces the odds of price action to continue downwards to print “lower lows”.

A clearance above 142.85 intermediate resistance (also the area where 20 and 200-day moving averages are acting as a ceiling) may kickstart a more pronounced countertrend corrective rebound to retrace a portion of the ongoing medium-term downtrend phase of the USD/JPY with the next resistances to watch at 144.80 and 146.70 (also the 50-day moving average).

Watch the 140.25 key short-term support

Fig 2: USD/JPY short-term minor trend as of 2 Jan 2024 (Source: TradingView, click to enlarge chart

If the 140.25 key short-term pivotal support manages to hold, the USD/JPY may stage the first leg of the potential countertrend rebound with the immediate resistance zone coming in at 142.85/143.40.

However, failure to hold at 140.25 invalidates the countertrend rebound scenario to reinstate the impulsive down move sequence toward the next immediate support at 139.20 in the first step.

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