USDJPY has been trending lower on the longer-term time frames but it looks like an upside breakout and reversal might be due. Price is making another test of the descending channel resistance on the daily time frame without even hitting the channel support previously.
The 100 SMA is below the 200 SMA so the path of least resistance could still be to the downside. The channel resistance is also near the 100 SMA, which might hold as dynamic resistance. Stochastic is on middle ground on its way down so there may be some selling pressure left.
However, USDJPY also seems to have formed a descending triangle formation with support around 100.00. Price has just recently bounced off this support level and is once again testing the triangle resistance. An upside breakout could lead to the formation of a double bottom pattern, another reversal signal.
There are no major releases from both the US and Japan today, leaving risk sentiment and central bank speculations as the main drivers of price action. On Monday, a speech by FOMC member Brainard weighed on Fed rate hike expectations since she emphasized the need to stay prudent and wait for more evidence of stronger consumer spending and inflation before tightening.
Meanwhile, a Nikkei report revealed that policymakers in the BOJ might be considering cutting interest rates deeper into negative territory. This could come with a countermeasure of trimming JGB purchases as the central bank might drop its timeline of achieving 2% inflation in two years. A BOJ official noted that these are still up for discussion but added that they have to weigh the benefits and costs of these moves first.
On Friday, the US will print its CPI and retail sales reports. These should provide a better idea of whether or not spending and inflation are picking up as expected, likely influencing Fed rate hike expectations before their actual decision next week. For now, the idea of a rate hike is weighing on risk sentiment and keeping the safe-haven dollar supported.