RSI momentum indicator

The current major uptrend phase of GBP/JPY has almost reached a key inflection/resistance level of 187.30. The weekly RSI momentum indicator has flashed out bearish conditions that advocate a potential multi-week bearish mean reversion/counter-trend movement. 50 is the key short-term resistance to watch with intermediate supports coming in at 180.60 and 179.20.     Bulls may have hit a major roadblock   Fig 1: GBP/JPY major trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart) The multi-month major uptrend phase of GBP/JPY in place since its September 2022 low of 149.05 has almost reached a key inflection/resistance level of 187.30 (printed an intraday high of 186.77 on 22 August 2023) which is defined by the September/November 2015 swing highs, upper boundary of the major ascending channel from September 2022 low, and a cluster of Fibonacci extension levels projected from various swing lows within the major uptrend. In addition, the weekly RSI momentum indicator has flashed a bearish divergence condition at its overbought region, suggesting that the upside momentum of the major uptrend phase has eased off. These observations in turn increase the odds of a multi-week bearish mean reversion/counter-trend movement at this juncture.   Oscillating within a steeper minor descending channel   Fig 2: GBP/JPY minor short-term trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)   In the shorter term as seen in the 1-hour chart, the price actions of GBP/JPY have started to oscillate within a steeper descending channel in place since the 6 September 2023 high of 185.78. Also, it has accelerated on the downside ex-post Bank of England’s monetary policy decision to keep its policy interest rate unchanged at 5.25% on last Thursday, 21 September. Interestingly, the minor snap-back in price actions seen last Friday, 22 September after the prior day’s 205 pips intraday plunge has managed to stall at the pull-back resistance of the former broken-down ascending channel support from the 23 August 2023 low and the 61.8% Fibonacci retracement of last Thursday, 21 September intraday plunge from 182.86 high to 180.81 low. In addition, the hourly RSI has shaped a “lower low” and started to inch lower right below the 50 level, suggesting short-term bearish momentum has resurfaced. Watch the 182.50 key short-term pivotal resistance to maintain the bearish bias for another potential down leg to test the intermediate supports of 180.60 and 179.20. However, a clearance above 182.50 negates the bearish tone to see the next resistance coming in at 183.80 (also the downward-sloping 20-day moving average).

The 2-day rebound seen in USD/JPY has reached 146.20/70 minor resistance zone. The movement of USD/JPY in the past month has a significant direct correlation with the US 10-year Treasury/10-year JGB yield spread. The short-term to medium-term trends of the US 10-year Treasury/10-year JGB yield spread remain bearish. Watch the 146.70 key short-term resistance on USD/JPY. This is a follow-up analysis of our prior report, “USD/JPY Technical: Potential counter-trend rebound within medium-term downtrend” published on 8 December 2023. Click here for a recap. USD/JPY has rebounded and hit the short-term resistance zones of 144.80/145.30 and 146.20/70 as highlighted in our previous analysis reinforced by the better-than-expected US non-farm payrolls data for November and a media report released yesterday, 11 December that stated the Bank of Japan (BoJ) officials were in no rush to scrap short-term negative interest in the upcoming 18 to 19 December monetary policy meeting according to sources. This latest set of “BoJ’s monetary policy thought process” reported by the media contrasted with the hawkish remarks made by BoJ Governor Ueda and Deputy Governor Himino last week that increased market speculations that the decade-plus of short-term negative interest rate policy in Japan may be scrapped sooner than expected. The USD/JPY extended its gains from last Friday and rallied by +0.86% to print an intraday high of 146.59 as seen in yesterday’s 11 December US session on the backdrop of the media report. It’s all about the yield spread between the US 10-year Treasury & 10-year JGB Fig 1: Movement of USD/JPY and US 10-year Treasury/10-year JGB yield spread as of 12 Dec 2023 (Source: TradingView, click to enlarge chart) Interestingly, the movement of the USD/JPY in the past month has moved in sync with the yield spread of the US 10-year Treasury/10-year Japanese government bonds (JGB) which can be considered as an indirect summation net effect of monetary policy guidance from the Fed and BoJ. Their current 20-day rolling correlation coefficient is at 0.90 which suggests that the movement of the US 10-year Treasury/10-year JGB yield spread has a significant direct influence on the movement of the USD/JPY. If the US 10-year Treasury/10-year JGB yield spread compressed (inched downwards), the movement of the USD/JPY reflected a similar directional move on the downside and vice versus if the yield spread expanded to the upside. Overall, the short to medium-term trend phases of the US 10-year Treasury/10-year JGB yield spread is still bearish as it continues to trend below its downward sloping 13-day moving average. Hence, it may put further downside pressure on the USD/JPY. USD/JPY’s recent minor rally may have exhausted Fig 2: USD/JPY short-term minor trend as of 12 Dec 2023 (Source: TradingView, click to enlarge chart) The price actions of the USD/JPY have staged a bearish reaction after 2-day of counter-trend rebound at the 146.70 short-term pivotal resistance (former minor swing lows area of 4/5 December 2023 & 50% Fibonacci retracement of the prior minor downtrend phase from 13 November 2023 high to 7 December 2023 low). In addition, the hourly RSI momentum indicator has flashed out a bearish divergence condition at its overbought condition during yesterday’s US session which suggests that the bullish momentum of the 2-day rally is likely to be exhausted. Near-term support will be at 144.20 and a break below it exposes the next intermediate support zone of 142.20/141.60 (coincides with the 200-day moving average). On the flip side, a clearance above 146.70 sees a potential extension of the counter-trend rebound towards the medium-term resistance zone of 147.40/148.60 (coincides with the downward sloping 20 and 50-day moving averages).  

Consensus is expecting no change to BoJ’s monetary policy, but its policy statement and Governor Ueda’s press conference may signal an imminent shift away from short-term negative interest rates. Mounting pressures from public and private sectors with Economy Minister Shindo attending today’s monetary policy decision meeting as a representative from the Cabinet Office. Technical analysis suggests further potential weakness in the USD/JPY. This is a follow-up analysis of our prior report, “USD/JPY Technical: Potential JPY bullish pressure reasserts” published on 12 December 2023. Click here for a recap. In December, the JPY was the best performer among the major currencies against the US dollar where it soared by +4.85% as of 19 December at this time of the writing. The recent JPY strength has been attributed to two factors; the US Federal Reserve’s dovish pivot where it guided market participants by projecting three cuts on the Fed funds rate in 2024. In contrast, hawkish guidance from top BoJ officials made two weeks ago where Governor Ueda and Deputy Governor Himino’s remarks have dialled up speculations that the current short-term negative interest rate policy in Japan in place since 2016 is likely to be scrapped sooner than expected and may come as early on the 23 January 2024 monetary policy meeting where BoJ releases its latest economic outlook report on the same day. Today, the Bank of Japan (BoJ) will conclude its last two-day monetary policy meeting for 2023 while the consensus expectations are expecting no change to the current monetary policy setting, BoJ can still potentially lay the groundwork for its upcoming shift away from short-term negative interest rates via its policy statement and BoJ Governor Ueda’s press conference at 3.30 pm after the close of the Japan’s stock market. BoJ faced mounting pressures from the public and private sectors Interestingly, ahead of today’s monetary policy decision outcome, it seems that mounting pressure from the public and private sectors has arisen, prominent Jaan business lobby Keidanren head Tokura said yesterday that BoJ must normalize monetary policy as early as possible. Also, today’s meeting outcome will be attended by Economy Minister Shindo as a representative from the Cabinet Office who cannot vote on monetary policy decisions. It is rare for a cabinet minister to attend BoJ monetary policy meetings as such “attendee roles” are usually assigned to deputy ministers. In the past meetings that cabinet ministers attended had resulted in major monetary policy changes such as the launch of the mega quantitative asset-buying programme in April 2013. USD/JPY is hovering around the 200-day moving average Fig 1: USD/JPY medium-term trend as of 19 Dec 2023 (Source: TradingView, click to enlarge chart   The medium and short-term downtrend phases of the USD/JPY in place since a test on its 151.95 major resistance on 13 November 2023 remain intact as price actions remain below its downward sloping 20 and 50-day moving averages without a bullish divergence condition seen on its daily RSI momentum indicator at its oversold region. Short-term momentum has turned bearish Fig 2: USD/JPY short-term minor trend as of 19 Dec 2023 (Source: TradingView, click to enlarge chart In the shorter term as depicted on the hourly chart, the RSI momentum indicator has staged a bearish breakdown below its parallel ascending support after it hit overbought status yesterday, 18 December. Watch the 143.30 short-term pivotal resistance and a break below the recent 140.95 low printed last Thursday, 14 December may expose the next intermediate support at 139.20 in the first step (also the close to the 50% Fibonacci retracement of the prior medium-term uptrend phase from 16 January 2023 low to 13 November 2023 high). On the other hand, a clearance above 143.30 negates the bearish tone for a potential minor countertrend rebound to see the next intermediate resistances coming in at 144.80 and 146.70 if 144.80 is taken out.