Bottom line:  USDJPY bearish structure remains valid until prices stay below 109.72 levels. At the moment, wave ii seems to have terminated around 109.20 levels.

Technical Analysis:

USDJPY has produced an aggressive counter trend rally after hitting lows around 107.60 levels yesterday.  As discussed earlier, 107.50/60 was a potential target before a meaningful pullback could occur. Looking at the immediate short term wave count, Wave I of a lower degree terminated 107.72 levels. This was followed by an expanded flat wave ii correction, which might have terminated at 109.25 levels today. Please also note that wave ii has travelled above 61.8% retracement of wave I earlier.  If the above wave counts are correct, USDJPY should ideally remain below 109.70 and push lower towards 106.00. The overall wave structure since 112.40 highs remains constructive for bears, since a classic 5-3 Elliott Wave Pattern completed earlier. The 5 wave drop towards 104.50 has been marked as Wave (1), followed by a 3 wave corrective rally marked as Wave (2). Ideally, another 5 waves should unfold lower below 104.50 mark, to complete the 5-3-5 pattern. Looking at the price action since 109.72 highs, Wave (3) might be already underway towards lower levels. At this point in writing, Wave 3 of (3) is unfolding and is expected to terminate below 106.00 levels. For the above structure to remain intact, USDJPY should stay below 109.72 levels. Hence, a high probability trade setup remains lower against 109.72, with potential target at 106.00 respectively. Please note the recent rally from 107.60 through 109.20 is just a counter trend and should not be mistaken as a resumption of another uptrend. Watch out for a bearish reversal from current levels (109.20) that drags prices lower below 104.50, going forward. Only a break above 109.72 should be of concern for the above setup.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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