USDJPY has been overperforming in the past two days, jumping above the 20- and 40-day simple moving averages in the short-term. When looking at the bigger picture the pair has been developing within a downward sloping channel since December 2016.
During the previous week, the price found a strong support obstacle from the return line of the channel and posted a 16-month low near the 104.60 price level.
In the daily timeframe, the near-term technical indicators are bullish and point to more strength in the market. The RSI indicator surpassed the threshold of 50 and is sloping slightly to the upside, while the MACD oscillator is rising in the negative territory and is finally flirting with the zero line. As a side note, the MACD is moving well above its trigger line, indicating further gains in price.
If price action remains above the two SMAs, there is an important resistance zone near 107.30, taken from the high on March 13. Rising above this area, an immediate major barrier to the upside is the 23.6% Fibonacci retracement level of 107.90 of the downleg from 118.60 to 104.60. Breaking this level could see a re-test of 108.20.
Conversely, if the pair attempts to fall below the 20- and 40-day SMAs, then the focus would shift to the downside again towards the 16-month low. If this level is breached and the price drops below the return line, then an aggressive bearish run is expected until the 101.00 low.
