Bottom line:  USDJPY produces a bearish bounce right at the triangle resistance. The structure looks bearish against 112.40 levels for now.

Technical Analysis:

USDJPY bears have come back sharp from 112.22 levels last week, just when it looked like the currency would run away breaking above 112.40 defined resistance earlier. Prices remained shy by just a few pips from 112.40 resistance and reacted right at the triangle resistance discussed last week. The immediate wave structure looks bearish at least towards the 108.00 zone. Looking at the overall wave counts, USDJPY could be still working on a bullish triangle with Waves A, B, C and D already in place at 99.00, 118.66, 105.26, 114.55 respectively and Wave E is also producing a triangle structure before breaking higher. If the above counts are correct, Wave E is working on its last leg lower (wave e) potentially expected to terminate around 108.00 levels. After that USDJPY could reverse and break higher above the 112.40 mark. Alternately, since 112.40 still remains intact, USDJPY might still drop close to 104.50 levels to complete a 5-3-5 wave structure before turning higher again. Probabilities are higher for a reversal from close to 108.00 levels for now. Looking at the immediate wave structure since 112.22 highs, USDJPY might have produces its first wave lower and could be preparing for a pullback, to carve a lower degree wave b before resuming lower again. The Fibonacci 0.618 resistance of the recent drop between 112.22 and 109.89 is seen at 111.37 levels. Most traders might be preparing to initiate fresh short positions there, with protective stop above 112.40 and potential targets below 108.50 respectively. Please note that potential remains for a drop towards 107.50 levels before a bullish reversal. USDJPY remains potential candidate to sell on rallies against 112.40 levels.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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