USD/JPY – Rebound Faces Critical Technical Resistance; Downside Risks Remain Prominent
USD/JPY initiated a moderate recovery during Monday’s trading session, regaining approximately half of Friday’s sharp losses as it climbed off recent lows. The pair was supported primarily by stronger U.S. Treasury yields and a rally in WTI oil prices, which touched their highest level in two weeks. While these factors provided some short-term bullish momentum, significant technical and fundamental hurdles remain, suggesting the current rebound may prove limited.
Friday’s session generated a significant bearish engulfing pattern on the daily chart—an important reversal indicator—which underscores potential bearish momentum building against USD/JPY. This bearish formation notably came at a critical juncture near the recent high of 148.77, clearly marking a rejection at key resistance levels. Thus, the present recovery must be viewed cautiously, as it may merely represent a temporary retracement within an overarching bearish context.
Technically, immediate upside resistance is explicitly defined at the 21-day moving average (DMA) at 147.88, followed closely by the Ichimoku base line near 148.39. A decisive close above these immediate hurdles would be essential to negate the bearish implications of Friday’s engulfing pattern. Moreover, the recent session peak at 148.77 stands out as a significant short-term resistance. Only a sustained breakout and daily close above this critical technical level would shift short-term sentiment decisively bullish again.
On the downside, robust technical support is clearly delineated. The Ichimoku cloud formation, currently expanding between 145.65 and 146.71, acts as a critical short-term technical buffer zone. Additionally, the 55-day moving average at 146.64 aligns closely with the cloud top, creating a strong confluence support level. Should bearish pressures reassert themselves and break below this support zone, further downside acceleration could unfold quickly, initially targeting the August low at 146.22. A deeper break below would expose the lower Bollinger band at 146.11, and subsequently open the door toward critical support near 145.00, with an extended bearish scenario potentially targeting July’s key low of 142.69.
Momentum indicators provide additional clarity on near-term sentiment. Daily RSI has partially stabilized but remains below the neutral 50-line, indicating that bearish momentum is still present. MACD remains negatively aligned, highlighting the ongoing downside risk despite the recent moderate recovery.
Fundamentally, traders should carefully monitor upcoming event risks. This week’s economic calendar, including U.S. jobless claims, July’s core PCE data, and Friday’s University of Michigan inflation expectations, will provide critical guidance on U.S. rate expectations. Should these data releases underscore labor market softness or persistent inflation concerns, renewed selling pressure on the dollar could swiftly emerge.
Given the fragile technical rebound and considerable fundamental event risks, traders are advised to exercise caution. While USD/JPY’s modest recovery may extend slightly higher in the near term, robust resistance near 148.00–148.77 represents significant bearish pressure. Without a confirmed breakout above these levels, the overarching technical bias remains tilted toward renewed downside pressure.