USD/JPY fell to near three-week lows after breaking through rising trend-channel support.
For the time being, an oversold RSI (14) on the 1-hour chart helped minimize any more losses.
Near the ascending channel support breakpoint, any attempts at recovery are likely to be capped.
During the first half of the European session, the USD/JPY pair saw significant selling and fell to near three-week lows, around the 109.75 region.
Concerns about the economic consequences of the highly contagious Delta strain of COVID-19 spreading have weighed on global risk sentiment. This was demonstrated by a sharp drop in equities markets, which raised demand for the traditional safe-haven Japanese yen and put pressure on the USD/JPY cross.
The drop pulled the USD/JPY pair deeper below the 110.40 support, which marks the lower boundary of an ascending trend-channel stretching from the monthly swing lows in April. As a result, the strong intraday drop could be linked to some technical selling in the context of slight US dollar weakness.
Meanwhile, the 1-hour chart’s RSI (14) fell into the oversold zone, limiting any additional losses. On the daily chart, oscillators have just begun to drift into bearish territory, supporting expectations for a continuation of the recent rapid drop from the 111.65 region, or YTD high.
As a result, a subsequent drop towards the 100-day SMA support, just ahead of the 109.00 level, now appears likely. Bearish traders will see some follow-through selling as a new trigger, setting the way for a further depreciating move towards the next key support in the 108.50-40 horizontal zone.
On the other hand, an effort to recover above the critical psychological level of 110.00 may now be viewed as a selling opportunity. As a result, the USD/JPY pair’s upside potential should be limited near the trend-channel support breakpoint of 110.40-45./n
