USD/JPY has an impressive upside rally on Wednesday’s trading session, surging to a fresh nine-month high of 111.58 and also recovering the gap that was created last May. The aggressive run helped the pair to add more than 150 pips in just one day, increasing the distance from the rising trend line.
However, the momentum indicators are overbought, and a downside retracement may be on the cards in the next sessions. The %K line of the stochastic jumped above the 80 level, while the RSI is turning slightly lower in the 70 level. On the other hand, the 20- and 40-day simple moving averages (SMAs) are pointing upwards, suggesting more gains.
An extension to the upside above the nine-month high of 111.58 could move the pair towards the 112.40 resistance, registered on April 2019. If the market manages to overcome that area, traders could look for resistance at the 113.70 hurdle, taken from the peak on December 2018.
A potential downside reversal could stall at the 110.65 support, identified by the previous high on January 17, before touching the 110.30 level. If the latter fails to halt bearish movements, the next target could be at the 23.6% Fibonacci retracement level of the up leg from 104.45 to 111.58 near 109.90. Below that, the 20- and 40-day SMAs around 109.60 could attract attention.
Regarding medium-term trading, the outlook has been bullish over the last six months and only a decisive close below the 50.0% Fibo of 108.00 could shift the outlook to bearish.
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