The US dollar continued its recovery against the Japanese yen currency last week, with the pair advancing towards the 111.50 resistance level.
USD/JPY analysis shows that the pair is starting to appear overstretched around the current level and could drop sharply this week.
USD/JPY medium-term price trend
The USD/JPY edged closer to the February 2020 trading high last week, with the pair recovering by more than 1,000 points since March 9.
USD/JPY technical analysis over the medium term shows that the pair could be due for a much-needed pullback this week if bears can defend the 112.00 level.
Bulls’ failure to surpass 112.00 last week has created a bearish double-top pattern, which could see medium-term technical selling pressure increased towards the USD/JPY pair this week.
It is noteworthy that the USD/JPY pair has a strong correlation with the Nikkei 225 index and that over recent weeks the Japanese yen has diverged from the index.
Continued failure to overcome the 111.50 to 112.00 area this week could see the pair slipping towards its 200-day moving average and possibly lower.
USD/JPY short-term price trend
Short-term USD/JPY technical analysis highlights that bulls are in control of the pair while the price trades above the 108.55 level.
The lower time frames show that the recent rally in the USD/JPY pair has created a substantial amount of negative MACD price divergence.
The four-hour time frame shows that the bearish price divergence currently extends down towards the 105.70 level.
Watch for a sharp reversal in the USD/JPY pair as the negative MACD price divergence starts to unwind across the lower time frames.
USD/JPY technical summary
USD/JPY analysis indicates that a sharp move lower could occur this week if bulls struggle to break above the 110.00 level. The 105.70 level is seen as a valid bearish target.