USDJPY seems to be poised to rally towards 108.40 zone, before reversing lower again. Bulls are looking in control as the currency pair takes out initial resistance around 107.20. The next in line is 107.40/50 resistance before we can expect a corrective drop.
USDJPY has remain in control of bears since 109.85 levels, seen on the hourly chart here. The currency has dropped meticulously carving an impulse wave towards 106.50 mark, labelled as Wave 1 on the chart here.
The subsequent wave structure could be defined as a potential expanded flat a-b-c in the making. If the above counts hold well, USDJPY should be heading towards 108.40 at least, before finding resistance. It remains to be seen if 107.50/60 is taken out before correcting lower.
Also note that fibonacci 0.618 retracement of the previous drop between 109.85 and 106.00 is passing through 108.40. Probability remains high for a bearish reaction if prices manage to reach the above resistance zone, going forward.
Furthermore, we can observe a fibonacci convergence just below the 108.40 levels. A convergence is marked with a fibonacci retracement matching up with that of the counter trend extension. In this case, fibonacci extension of the counter trend rally is seen around 108.30 levels. We can expect a sharp bearish bounce around the 108.30/40 region due to fibonacci convergence.
Alternately, if USDJPY continues to rally past the 109.85 resistance, it would nullify the above bearish structure. We would re-structure the above wave counts and most probably turn bullish in that case. At least for now, we favour a bearish reversal after a brief counter trend rally is complete.
Most aggressive traders might initiate long positions around current price (107.00/10), with protective stop below 106.00 and projected target towards 108.40/50. Thereafter, it might be safe to turn bearish again.
Technical Analysis Team
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