USD/JPY Technicals – Breakout imminent with BOJ event looming

Is USD/JPY bullish or bearish right now? There are conflicting signs on the short-term chart. Lets start from the bullish perspective –

1) Price broke away from the rising channel, only to be pushed back above 99.0 after being supported by 98.5.
2) The White House bomb hoax sent price lower, but bulls took over quickly and allow price to continue trading within Channel on 24th Apr.
3) Channel bottom acting as good support with yesterday’s early Asian session sell-off not able to break the support.

What about the bearish perspective? –
1) Price recovery on 24th not able to retest consolidation zone on Monday
2) Price broke away from Channel during yesterday’s US session with subsequent recovery not able to enter Channel nor even test 24th Apr highs.
3) Price broke 99.25 interim support which has been holding up most of 24th and 25th price action.

But all these happened in the past, what are the forward looking signs?

Hourly Chart

Currently, price is being supported by 99.0, with Stochastic readings looking likely to rebound higher with a Stoch/Signal cross. Current trough is also around similar levels found on 23rd April. There is a likelihood that price may trade in between 99.0 – 99.35, similar to last Friday’s consolidation during early US session due to the fact that a winner has not emerged from the struggles between bulls and bears. Despite the strong rally from 97.5, price is struggling to form a directional identity between 98.5 – 100.0 and we may be seeing more sideways movement in the near term.

Daily Chart

Daily chart goes one step further, suggesting that the sideways trend may be forced to find a winner very soon with a breakout imminent. Price is currently being forced into the apex of the triangle formed from April’s low, and we are likely to see either bulls being forced into action by the rising trendline support or bears being made the default winner if price continue to linger around this level. Either way, acceleration towards either side may occur once price break away from this triangle (and also the narrowing wedge on the short-term chart).

With BOJ rate decision coming on tomorrow, there will be added fundamental push that will help the technical breakout to run further. It is well expected that BOJ will not be implementing anything new, as Kuroda himself has said that he is done for now. However, what is currently unknown is how the market will react should BOJ really make this event a non-decision. If the market actually trades lower if BOJ keep current situation on par, this would indicate that the rally post BOJ announcement back on early April was due to speculation of more stimulus to come. This would also mean that the chance of a sentiment reversal after BOJ announcement would be higher, giving bears an edge in future direction. If price remains flat, we can infer that current price is less attributable to speculative actions and a longer-term bullish move is more likely especially if fundamentals of Japan economy improves with the stimulus. A true bullish scenario would see BOJ implementing new policies, but the likelihood remain minimal.

More Links:
AUD/USD Technicals – Bullish above 1.03 but Bearish Shadows Linger
EUR/USD Technicals – Bullish Breakout or Fakeout?
WTI Crude – Bullish Acceleration as Double Top Invalidated

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