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USD/JPY bears looked on in horror from mid-April, as the 2017 downtrend suffered an extensive retracement. From a low right above Y108, the price marched steadily higher, as traders bought the US dollar and sold the yen. This may have been due to expectations of a tighter Federal Reserve policy, or hopes that Donald Trump’s stimulus programme might yet materialise.
Fundamentally, the trend down from the highs of the year near Y119 remained intact, even with the hefty bounce. The high was reached on 10 May, when the pair got within a few points of Y114.50. This took momentum indicators on the daily chart to extreme overbought levels, although the fact that the rally had broken the downtrend line that had held in early March, made bears cautious.
Now, it seems as if they are in charge once again. The price has dropped back below Y113, and it may even get back below the aforementioned downtrend line in short order. While the trendline had been broken, the high of early May was still below that of March, thus falling into the ‘lower high’ category that defines a downtrend.
Using the daily chart, we would now look for the downward move to head back towards Y108, where the pair bounced in April. If this is broken we look to the 28 October peak at Y105.53, a new potential area of support. The longer-term future of the trend will be determined by whether the April low can be broken and a new ‘lower low’ created.