On Monday, the Dollar-Yen pair witnessed a solid rally from the low of 111.89 to 112.72 as the US 10-year treasury yield rose from 2.32 percent to 2.372 percent. Despite the strong bid tone, the currency pair failed to cut through the upward sloping 50-day MA and ended the day at 112.61 levels.
Little action was seen in the Asian session as the treasury yield remained flat lined. Currently, it is trading at 112.55 levels; having clocked a high of 112.70. The data docket is thin, also the moves could be contained, given the North American traders are away from their desks. Still, the spot could witness big moves if Yellen speech offers hawkish/dovish surprise during her speech scheduled at 23:00 GMT.
As for the technical charts, the spot looks set to revisit 113.00 levels in the next 24 hours.
The above chart shows a potential inverse head and shoulders pattern with neckline hurdle at 112.73. Interestingly, the inverse head and shoulders pattern has been formed at the 111.90 – 38.2% Fib. of Sep. 8 low – Jun. 6 high.
The 50-MA (currently at 112.34) has shed bearish bias and is likely to act as a strong support. Also, the descending trendline has been challenged since last 11 hours and is likely to fall soon.
The daily chart clearly favors the bears, given the nice topping pattern and a break below 113.00 levels last week.
The RSI is below 50.00 (in bearish territory). Also, today's move above the 5-day MA has been short-lived. Thus, the spot looks set to revisit 111.90 levels.
The only factor that favors the bulls is the upward sloping 50-day MA (currently at 112.76).
Bearish scenario: Drop to 111.74 (200-day MA) – A break below 112.34 (1-hour 50-MA) would add credence to the failure to hold above the 5-day MA and shall open doors for a drop to 111.74 (200-day MA).
Bullish scenario: A break above 112.73 (inverse head and shoulders neckline) could yield a rally to 113.20 levels.