Bottom line:  USDJPY structure would remain bearish until prices hold below 110.30 levels. A break higher might test 110.70.

Technical Analysis:

USDJPY bears seem to be in control with 110.30 intact. A bearish reversal could be expected from current levels (109.84), pushing prices towards 106.00 and further. Looking at the short term price action since the 110.30 highs, USDJPY might have completed Wave 1 lower between 110.30 and 108.26. The recent rally has been capped below 110.30 and hence could be a valid Wave 2. If the above counts are correct, we can expect a sharp bearish reversal towards 106.00 levels as Wave 3 unfolds. Bottom line is that 110.30 should hold, to keep the above bearish structure intact. Looking at the larger degree counts again, USDJPY has already produced a 5-3 pattern towards south side. The drop from 112.40 through 104.50 was in 5 waves, labelled Wave (1), while the subsequent rally through 110.30 was in 3 waves (potential zigzag), Wave (2). If the above holds well, a larger Wave (3) could be underway since 110.30 and lower degree waves 1 and 2 are potentially in place at 108.26 and 109.85 respectively. Alternately, if prices break above 110.30, the next resistance comes in at 110.70 and a bearish reversal could be expected there. Please note that USDJPY remains vulnerable for a potential bearish reversal ahead until 112.40 remains intact. Only a consistent break above 110.70, which is the fibonacci 0.786 retracement, would be a threat to the existing bearish structure. Hence, traders might be willing to remain short with a protective stop above 110.30 and projected targets around 106.00, going forward. A drop below 108.60 would confirm that a meaningful top has been carved and USDJPY is headed towards 106.00. Bearish reversal is expected below 110.30 levels.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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