USD/JPY - ‘Death Cross’ confirmed ahead of the BOJ rate decision, is the sell-off over?

The daily chart of the Dollar-Yen pair carries a ‘Death Cross’ - bearish crossover between the 50-DMA and 200-DMA ahead of the Bank of Japan rate decision. The bearish crossover was last seen in January 2016 and was followed by a big sell-off in the pair. 

However, historical data shows - more often than not the crossover between the short-term and long-term moving average works well as a contrarian indicator… Jan 2016 being an exception, given the spot was coming off the highest level since 2002. 

Focus on BOJ

The central bank is widely expected to keep rates unchanged and retain QQE with yield curve control policy and thus ensure that the Japanese Yen remains a sitting duck amid rising global rate environment. The sell-off from the recent high of 114.49 would gather pace if the BOJ turns hawkish, although the odds of such an outcome are very low. 

James Chen from Forex.com writes, “If the BoJ delivers a dovish statement on Thursday, as is likely to be the case, resulting pressure on the yen could push USD/JPY back up. This could especially be the case if the recently well-oversold dollar stages an overdue relief rebound. In such an event, a move back above 112.00 could prompt the currency pair to begin targeting key upside resistance at 115.00 once again.”

USD/JPY Technicals

The previous two daily candles carry long lower shadow, suggesting dip demand. The dips to/below the 200-DMA have been short lived. 

“Technically risks remain to the downside” - FXStreet Chief Analyst Valeria Bednarik

“Technically, the risk remains towards the downside, given that in the 4 hour chart, the price is right below its 200 SMA and barely holding above the 50% retracement of its June/July advance at 111.60, the immediate support, whilst technical indicators lost directional strength, but remain well below their mid-lines.”