Bottom line:  USDJPY bearish structure is expected to remain intact until prices stay below 112.22 levels. Expect a counter trend rally to materialize towards 108.00 before the drop resumes.

Technical Analysis:

USDJPY bears are in complete control taking out almost 1200 pips in a matter of few trading sessions. Triangle breakouts are powerful as the one seen above and they produce shallow retracement as well. Looking at the overall triangle structure, USDJPY has produced a bearish contracting triangle structure lasting several years, since the June 22, 2016 lows. The triangle waves a, b, c, d were in place at 118.55, 104.63, 114.54 and 104.78 respectively. Wave e, might have unfolded as a combination w-x-y, and terminated at 112.22 before finally producing the breakout. Furthermore, looking at the higher degree wave counts, USDJPY had rallied into 5 waves, between 75.00 and 125.85 respectively, not seen here. The subsequent drop to 104.00 could be labelled as Wave A, within the corrective drop A-B-C. Please note that Wave B has finally unfolded as a bearish contracting triangle, and has terminated at 112.22 levels. If the above long and short term counts are correct, Wave C is underway now, and is expected to push prices close to 104.00 levels, going forward. Looking further into the recent wave counts, an impulse drop seems to have confirmed between 112.22 and 101.18 levels respectively, labelled as Wave 1. A counter trend rally seems to be underway towards 108.00 which is Fibonacci 0.618 retracement of the previous drop. Also note that the triangle support turned resistance trend line is seen to be passing through the same zone. Most traders might be willing to initiate fresh short positions around the 108.00 mark, with a protective stop above 112.22 and projected target below 104.00 going forward.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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