USDJPY looks ready for more gains as the pair has formed a double bottom on its daily time frame. Price failed in its last two attempts to break past the 108.00 support zone and is on its way to test the neckline at 114.00-114.50. A break past this resistance could send the pair up by around 600 pips or the same height as the chart formation.
The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside, but the gap is narrowing to signal that a new crossover could take place. If this materializes, price could still gain bearish momentum and test support again. Also, stochastic is indicating overbought conditions and might be ready to head back down, reflecting a return in selling pressure.
Earlier today, economic data from Japan came in mixed, following last Friday’s set of weaker than expected inflation readings. This underscores the BOJ’s stance of keeping monetary stimulus in place for the time being, unlike most major central banks which seem to have shifted to a less dovish bias lately.
Meanwhile, medium-tier data from the US turned out mostly stronger than expected last week, but the real test of dollar strength could come on Friday’s NFP release. Another downbeat jobs figure could undermine the Fed’s rate hike timeline but an upbeat result could reinforce rate hike expectations for September.