Bottom line:  USDJPY medium term bearish outlook remains well intact until prices stay below 109.73. Having said that, expect for short term flash rallies through 109.50 levels before resuming lower.

Technical Analysis:

USDJPY bears seem to be in control after dropping from 109.73 through 108.43 levels recently, but be prepared for a sharp pullback/retracement towards 109.50 levels, before reversing lower again. Looking at the short term wave structure, it could be presumed that a lower degree Wave 1 could be in place at 108.43 levels or could terminate just around the 108.10/20 mark. Ideally, a pullback rally could be then expected, towards 109.50/60 levels which could be potential Wave 2, of the same degree. If the above structure should hold, prices should stay below 109.73 levels and turn lower, to resume Wave 3 of (3) towards 106.30/50 levels at least. Furthermore, a 5 wave drop is expected to unfold from 109.73 levels, and push below 104.45 as Wave (3) progresses further.  The medium term wave structure remains intact with Waves (1) in place, dropping from 112.40 towards 104.53 levels respectively; followed by a Wave (2) corrective rally towards 109.73. The USDJPY medium term wave count represents a classic 5-3 Elliott Wave pattern, which should ideally be followed by another 5 wave movement towards the major direction (which is on the south side in this case). Hence, a high probable trade direction is expected to be on the south side against 110.70 (it shall be reduced to 109.73 once lower degree wave 2 is in place), with potential targets at 104.50 and lower, going forward. Watch out for a sharp counter trend rally which could potentially terminate around 109.50/60 levels in the short term. This should be taken as yet another opportunity to build short positions towards 104.50.

Prepared by

Harsh Japee, Technical Analyst

USDJPY Chart

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