Bottom line:  USDJPY bearish structure remains intact until prices stay below 110.70/112.40 levels.

Technical Analysis:

USDJPY might have formed a top at 109.72 and re-tested it at 109.70 in the past few trading sessions. The overall structure since 112.40 highs April 24, 2019 remains constructive for bears, and USDJPY has hit resistance around the fibonacci 0.618 retracement levels at 109.38. Please note that a push above 109.72 should be shallow, and might just be a bull trap this is better avoided. Looking into the larger degree wave counts until now, the USDJPY had dropped between 112.40 and 104.50 into 5 waves labelled as Wave (1). This was followed by a corrective rally A-B-C between 104.50 through 109.72, labelled as potential Wave (2) termination. Prices are stalling around the 61.8% retracement of Wave (1), which is a typical guideline for Wave (2). The above is a classic example of a 5-3 Elliott Wave pattern, which should be ideally followed by another 5 wave movement towards the major trend which is down, in this case. If the above structure holds well, prices should stay below 112.40 (ideally below 110.70), and drop lower towards 104.50 unfolding into 5 waves. The projected Wave (3) lower should travel a distance of 1.618 fibonacci extension of Wave (1) which is clearly below 104.50, and the drop is expected to be sharp. A drop below 108.40 would confirm that price action is also moving according to the above projected wave counts. Therefore, a high probability trade setup from here is expected to be on the south side against 112.40/110.70, with a potential price target below 104.50, as we push through Q1 in 2020. Watch out for a bearish reversal around these levels, and expect bears to remain in control carving lower highs and lower lows until 104.50.

Prepared by

Harsh Japee, Technical Analyst

USDJPY Chart

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