Bottom line:  USDJPY bearish structure is intact until 112.40 resistance is in place. A lower high at 110.30 needs to hold for bears to remain in control.

Technical Analysis:

USDJPY bears are back in control after prices dropped over 150 pips through last week. A lower high was carved at 110.30 on January 16, 2020 which seems to be holding well. Any intraday rallies from here are also expected to remain well capped below 110.30. The short term waves might have completed a lower degree wave I between 110.30 and 108.72 or might complete at 108.50 levels. We can expect a counter trend rally towards 109.30/60 levels, before the drop could resume further. Looking at the larger degree wave structure, USDJPY has already produced a 5-3 structure. The drop from 112.40 through 104.50 was seen in 5 waves, labelled as Wave (1). Subsequent rally was in 3 waves towards 110.30, marked as Wave (2). Also note that Wave (2) travelled or retraced up to 61.8% of Wave (1), as prices terminated at 110.30 levels.  If the above larger counts are correct, USDJPY should be ideally poised to produce another 5 waves drop from 110.30 levels. As the sub waves unfold lower, prices should drop below 104.50 levels, going forward. A high probable trade setup from here is to remain short and look to add further on pullbacks, with protective stop loss at 112.40 and projected targets below 104.50 respectively. The risk shall be reduced to 110.30 levels, once we see a price break below 107.65, the January 08, 2020 lows. Be prepared for a corrective rally towards 109.50/70 levels at least, and it could be seen as an opportunity to initiate fresh short positions. USDJPY remains a good candidate to sell on rallies.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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