There was an enormous drop in  USD/JPY today after softer-than-expected CPI data was released within the U.S.

Will the USD/JPY bounce after such a pointy sell-off?

Welcome to TA of the Day (TAOTD)!

Here’s the 4-hour chart:

USD/JPY 1-Hour Chart by TradingView

Using technical evaluation concepts covered in our forex course, let’s analyze USD/JPY.

Technical Evaluation of USD/JPY 4-Hour Chart

Easy Moving Averages (SMAs)

• 200 SMA: Positioned around 158.63. The value is currently near this level, indicating it as a major support. The slope of the 200 SMA is upward, suggesting long-term bullish momentum.
• 50 SMA: Positioned around 161.12. The value is below this level, indicating a possible bearish sentiment within the short term.

When you’re recent to SMAs, read our School of Pipsology lessons on easy moving averages.

Keltner Channel

• Keltner Channel: The value has moved below the center line of the Keltner Channel (160.66), and the lower band (159.39)indicating potential bearish momentum.

When you’re not familar with Keltner Chaneels  read our School of Pipsology lessons on Keltner Channels.

Relative Strength Index

• RSI (14): The present reading is around 25.77, indicating that the market is within the oversold territory. This means a possible for a reversal or at the least a brief bounce.

When you’re recent to RSI, read our School of Pipsology lessons on Relative Strength Index (RSI).

Key Observations

Price Motion:

• Recent Trend: The value had been in an uptrend but recently experienced a pointy sell-off, breaking below each the 50 SMA and the center line of the Keltner Channel.
• Support: The value found support near the 200 SMA (158.63).
• Resistance: Before plunging, the value faced resistance near the upper Channel line (161.85).

Support and Resistance Levels:

• Support: Immediate support on the 200 SMA (158.63).
• Resistance: Likely across the 50 SMA (161.12) and the center Keltner Channel line (160.66).

When you’re recent to the conccept of “support and resistance,” read our School of Pipsology lessons on trading support and resistance levels.

RSI Indicator:

• The RSI within the oversold region suggests that the selling pressure may be easing, and a reversal might be on the horizon.

Potential Trade Scenarios

The next trade scenarios are provided solely for educational purposes. Since they don’t include full risk management practices, they will not be intended to function actual trade recommendations, but merely food for thought to aid you generate your individual trade idea.

Long Bias:

• Consideration Point: Consider entering a protracted position if the value shows signs of support near the 200 SMA (158.63) or the lower Keltner Channel band (159.39) with confirmation from a bullish candlestick pattern or a rebound within the RSI from oversold levels.
• Invalidation Point: Consider a stop-loss below the 200 SMA around 158.63. And even below probably the most recent spike low around 157.44.
• Potential Goal: Search for a move towards the 50 SMA (161.12) and the center Keltner Channel line (160.66) if the reversal gains momentum.

Short Bias

• Consideration Point: Consider entering a brief position if the value fails to carry above the 200 SMA (158.63) and shows signs of continued bearish momentum, comparable to a powerful bearish candlestick pattern or a failure of the RSI to maneuver out of the oversold territory.
• Invalidation Point: Consider a stop-loss above the recent high at 161.124 to administer risk. This level is crucial as a breakout above it could invalidate the bearish setup.
• Potential Goal: Initial goal might be the swing lowi in late June (154.55). If bearish momentum continues, search for further downside towards 150.00.

TAOTD Summary

• Trend: The trend had been bullish, however the recent sharp sell-off and the value moving below the 50 SMA and middle Keltner Channel line suggest a possible shift to bearish sentiment.
• Key Levels: Support at 158.63 (200 SMA), resistance at 161.12 and 160.66.
• Momentum: Oversold conditions indicated by the RSI suggest a possible for a bounce, but when the value fails to carry support, further downside is feasible.