The Japanese yen (USD/JPY) weakened against the US dollar to its lowest level since May 2002 amid growing policy divergence between the Bank of Japan and the Federal Reserve.
In the Asian session, the USD/JPY pair reached a high of 126.30, the level last seen 20 years ago. In the medium term, the currency pair has a strong bullish trend. JPY is likely to extend its weakness and could reach the psychological level of 130.00.
The yen remains a safe haven asset since investors buy dollars and sell the yen. Which makes it very attractive due to the good performance it has had in recent weeks.
Looking at the 4-hour chart, it is clear that the Japanese yen has reached +1/8 Murray which represents a strong overbought zone.
The Japanese yen has touched the top of the uptrend channel formed since early April and has been rejected, a technical correction is likely in the next few hours and it may reach the 21 SMA at 125.19.
According to the 4-hour chart, USD/JPY is above the 21 SMA which favors a bullish outlook in the short term.
However, a sharp break below the psychological level of 125.00 around 8/8 Murray is likely to cause a strong technical correction and the pair can retrace 7/8 Murray at 123.43.
The eagle indicator is showing signs of exhaustion. A technical correction is likely in the next few days and it could reach the 200 EMA located on the 4-hour chart around 120.85.
Our trading plan for the next few hours is to sell the Japanese yen at the current levels of 125.79. In case of a pullback towards 126.30, it will also be a signal to sell, with targets at 125.19. In case of the break of SMA 21, we can continue selling until 123.45.