Bottom line:  USDJPY medium term bearish structure continue to remain intact with prices holding below 112.22/40 levels. Watch out for a sharp reversal lower towards 99.00 and 94.00 as traders prepare for another selloff.

Fundamental Outlook:

US Dollar gained as EURUSD sold off just ahead of the EU Summit yesterday. There is pessimism over EU leaders coming to an agreement on a $2.2 trillion plan, which helped the US Dollar gain against major currencies, despite a rally in SPX500 and Dow Jones.

The SPX500 alongside Dow Jones managed to close higher by over 2% yesterday. Optimism over another $484 billion stimulus talks by Fed and Netflix earnings, showed up on the indices as they opened gap up. As we stare at a Global Recession that could be worst since the Great Depression of 1930s, it is not difficult to gauge another round of selloff inching closer though.

Technical Analysis:

USDJPY remains in control of bears since printing 112.40 highs on February 20, 2020. The drop between 112.40 and 101.18 was an impulse and could be the beginning of a 5 wave decline towards 99.00 and 94.00 levels respectively.

The counter trend rally had reached up to the fibonacci 0.88 retracement of earlier drop but managed to terminate at 112.22 levels. This keeps the bearish structure intact until prices remain below 112.40 mark. Immediate resistance is at 112.22 while interim support is seen around 103.00 mark.

USDJPY has been drifting sideways since 112.22 highs and could test 110.00 before reversing sharply lower. The 110.00 mark coincides with fibonacci 0.618 retracement of the recent drop between 112.22 and 106.92 respectively. Alternately, a break below 106.90 levels from here would accelerate the drop towards 101.18 levels.

Traders might be preparing to sell higher around 110.00 or on a break below 106.90, with a protective stop at 112.22 and projected targets below 101.00 respectively. USDJPY remains potential sell on rallies for now.

Prepared by

Harsh Japee, Technical Analyst.

USDJPY Chart

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