USDJPY sold off on Friday but is currently testing support at a rising trend line connecting the lows on the 1-hour time frame. 

Price could be due for a bounce from here, possibly taking it up to the previous highs around the 123.50 minor psychological level.

The trend line coincides with the 200 SMA, which has served as a dynamic inflection point in the past, adding to its strength as a support area around the 122.50 minor psychological level. The 100 SMA is above this long-term moving averages, confirming that the path of least resistance is to the upside.

Meanwhile, stochastic is moving up from the oversold area, indicating that a bounce is likely to take place. RSI is also pointing north, suggesting another round of gains for USDJPY. However, a break below the 122.00 level might signal that a reversal is in order.

Friday’s release of US retail sales and PPI data saw weaker than expected results, casting doubts on whether the Fed can be able to hike interest rates before the end of the year. Still, the Japanese economy remains on much weaker footing since the GDP figure released in today’s Asian session indicated that it’s back in recession.

Later on in the week, the FOMC minutes are up for release and this should have more clues on whether or not the Fed is set to tighten soon. Another event risk for this play is the BOJ interest rate statement, as calls for further easing have intensified.

By Kate Curtis from Trader’s Way