USD/JPY Review: Trims gains, rally stalls on overbought conditions

• Currently, the USD/JPY pair is most overbought since December 2016.
• The relative strength index (RSI) on the daily, 4-hour and 1-hour chart is reporting overbought conditions.
• The currency pair has backed off from the six-month high of 102.77.

The USD/JPY pair is most overbought in over 18 months, according to the 14-day relative strength index (RSI).

The RSI, one of the most widely followed technical indicators, is hovering at 75.00 – the highest level since December 2016, meaning the rally is overdone and could be due for a healthy pullback.

Interestingly, the RSI on the 4-hour chart is also flashing overbought conditions. Meanwhile, the hourly RSI is rolling over from the overbought territory (above 70.00), indicating a scope for a correction.

Further, the Chinese Yuan is also showing signs of life. The USD/CNH (offshore Yun) is now trading at 6.6765 per dollar – down 0.20 percent from the previous day’s close of 6.6919. Hence, USD/JPY could be in for a minor pullback as the Japanese Yen has been closely following the action in the Chinese Yuan and other Asian currencies since last few days.

USD/JPY Technical Outlook

Hourly chart

Spot Rate: 112.58

Daily High: 112.77

Daily Low: 112.47

Trend: Bearish divergence, correction likely

Resistance

R1: 112.77 (session high)

R2: 113.00 (psychological hurdle)

R3: 113.23 (200-week moving average)

Support

S1: 112.47 (session low)

S2: 111.98 (50-hour moving average)

S3: 111.42 (100-hour moving average)