Technical Analysis – USDJPY looks overbought but still supported

USDJPY came under weak selling pressure after peaking at a six-month high of 140.91 on Monday, with the pair set to close in negative territory for the first time in three weeks.

The RSI and the stochastic oscillator are warning that the bulls are running out of fuel as the indicators are changing direction below their overbought levels.

That said, traders may not engage in additional selling activities, unless the current support area around the 50% Fibonacci retracement level of the 151.93-127.21 downtrend proves fragile at 139.57. If this area is breached, the price could head for the 20-day exponential moving average (EMA) at 137.90. A steeper downfall could shift the spotlight on the 136.65-135.67 zone, formed by the 38.2% Fibonacci mark and the ascending trendline from March. Should the bears break the protection around the 200-day EMA too, the next pivot point could develop somewhere between the 23.6% Fibonacci of 133.00 and the 2023 ascending trendline at 132.00.

In the positive scenario, where the pair bounces on the 139.57 level, the bulls may attempt to print a new higher high near the 141.50 barrier and the tentative resistance line at 142.00. A successful penetration higher could prompt an advance towards the 61.8% Fibonacci of 144.00 and the 144.70 barrier.

Summing up, USDJPY is expected to trim some gains in the short term as the technical picture reflects overbought conditions. A close below 139.57 could confirm another bearish extension.

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