The long-term trend could reverse, but bearish momentum is missing

• USD/JPY hit new lows, indicating a possible long-term trend reversal.
• The move lacks momentum though and risks running out of energy before a pullback higher.

USD/JPY made a bearish break below key August 5 lows. Although the move down lacks momentum, the break could indicate a long-term trend reversal.

USD/JPY Daily Chart

The pair has already broken a major multi-year trend line, suggesting that the long-term uptrend has been undermined. The break below the August 5 lows confirms that it could have reversed. Since it is a tenet of technical analysis theory that “the trend is your friend,” such a break increases the chances of more downsides developing in the future.

However, strong support comes at 140.25 (December 2023 low) and this could slow down the pair’s descent. A break below this level would provide further confirmation evidence of a trend reversal. Such a break could take the price down to the next target at 137.24 (July 2023 low).

USD/JPY is showing bullish convergence between price and the Relative Strength Index (RSI). At the August 5 low, the RSI was in the oversold zone, now, although the price has dropped to a low, the RSI is not.

This could be a sign that the move down lacks bearish conviction and suggests a higher risk of a reversal.