Technical analysis – USD/JPY tests 158.00 level for first time in five months

• USD/JPY extends uptrend to 5-month highs, reaches 158.00.

• But positive momentum may be waning.

USD/JPY crossed above the 158.00 mark on Thursday for the first time since July, but the price is trading slightly below that significant level on Friday. The RSI is reflecting the weaker upside momentum as it appears to be plateauing just below the 70 overbought area. But the MACD continues to climb higher and remains well above its red signal line.

The bulls would need to successfully overcome the resistance in the 158.00 region if the upside momentum is to strengthen or even last. A break above it would bring into focus the psychologically important 160.00 milestone, and an even more crucial level awaits at 162.00, where prices failed to breach it in early July. Nevertheless, rising above 162.00 would reinforce the pair’s long-term bullish outlook.

However, if the 158.00 resistance proves difficult to crack and the price reverses lower, there’s likely to be immediate support around the 78.6% Fibonacci retracement of the July-September downtrend at 157.15. A drop below it would bring into scope the 155.00 level, which acted as strong support during May and June. Further down, the 61.8% Fibonacci is another strong obstacle for the bears as it is being fortified by the 20- and 50-day simple moving average (SMA) in the 153.40 region.

Should the losses stretch all the way until the December low of 148.63, the bullish structure would come into question, at least in the medium term.

In brief, USDJPY faces a potentially tough battle at 158.00 and surpassing it is essential to maintaining the current bullish phase. Failure to do so would risk shifting the medium-term picture to a more neutral one.