USD/JPY Price Analysis: Ascending channel breakdown has set the stage for further losses

• USD/JPY broke through ascending trend-channel support and dived to near three-week lows.
• Oversold RSI (14) on the 1-hour chart helped limit any further losses, only for the time being.
• Attempted recovery is likely to remain capped near the ascending channel support breakpoint.

The USD/JPY pair witnessed heavy selling on Thursday and dived to near three-week lows, around the 109.75 region during the first half of the European session.

Worries about the economic fallout from the spread of the highly contagious Delta variant of COVID-19 took its toll on the global risk sentiment. This was evident from a steep decline in the equity markets, which boosted demand for traditional safe-haven Japanese yen and exerted heavy pressure on the USD/JPY cross.

From a technical perspective, the downfall dragged the USD/JPY pair further below the 110.40 support, marking the lower boundary of an ascending trend-channel extending from April monthly swing lows. Hence, the steep intraday decline could further be attributed to some technical selling amid a modest US dollar weakness.

Meanwhile, RSI (14) on the 1-hour chart dropped into the oversold zone and helped limit any further losses. That said, oscillators on the daily chart have just started drifting into the bearish territory and support prospects for an extension of the recent sharp pullback from the 111.65 area, or YTD tops.

Hence, a subsequent slide towards the 100-day SMA support, just ahead of the 109.00 level, now looks like a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and set the stage for a further depreciating move towards the next relevant support near the 108.50-40 horizontal zone.

On the flip side, attempted recovery move back above the key 110.00 psychological mark might now be seen as a selling opportunity. This, in turn, should cap the upside for the USD/JPY pair near the mentioned trend-channel support breakpoint, around the 110.40-45 region.

USD/JPY daily chart

Technical levels to watch