How Much More Upside for the Japanese yen?

US Dollar, Japanese Yen, USD/JPY – Technical Outlook:

• USD/JPY is at a crucial support area.
• The pair could fall further if it breaks below the support.
• How deep could a potential retreat be, and what are the key levels to watch?

USD/JPY SHORT-TERM TECHNICAL FORECAST – NEUTRAL

The Japanese yen is testing a major ceiling against the US Dollar, a break above which could seal an interim low for the Japanese currency.

USD/JPY is now at an important crossroads – the September highs of 145.00-145.90. This support is crucial as the pair hasn’t broken below a previous high since the major ascent began earlier this year. Hence, a modest rebound wouldn’t be surprising. However, any potential rebound could be short lived.

USD/JPY Daily Chart

Chart Created Using TradingView

Negative momentum divergence on the daily and weekly charts (rising price associated with falling momentum) at the October ceiling of 151.95 indicates that the multi-month rally is running out of steam,as we highlighted last week. Moreover, USD/JPY has run into a significant barrier on longer-term charts, including the 1998 high of 147.65, coinciding with the 200-quarter moving average and the upper edge of a rising channel from 2012 (see chart).

Any break of the 145.00-145.90 floor would at the very least confirm a short-term peak in USD/JPY, being the October high of 151.95. If it holds below the end-October high of 148.85, the odds of a break below 145.00-145.90 are growing.

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USD/JPY Quarterly Chart

Chart Created Using TradingView

Any break below 145.00-145.90 could open the door toward key converged support at the July high, coinciding with the 89-day moving average, at about 139.50-141.00, which could serve as a floor for another leg higher. Major support is on the 200-day moving average (now at about 132.50). The odds of a test of this support, at least in this move, appear to be trivial. In the event, USD/JPY were to test the long-term moving average, it would be a strong sign that the medium-term uptrend had changed. For now, though, the focus is on the 145.00-145.90 floor.

— Written by Manish Jaradi, Strategist for DailyFX.com