Hello traders! The USD/JPY has clearly established a very strong downtrend during the past 5 trading days. Throughout that period, the price has gone down by 245 pips (2.29%) and broke below massive support formed near 106.00 psychological level.
This shows a strong selling pressure, which is highly likely to continue. However, today USD/JPY has reached 161.8% Fibonacci retracement level at 107.78 which has been rejected cleanly. This might result in a consolidation phase or a correction up, but only if the support will be respected. The pullback could bring the price up to the previous demand zone near 106.00 and only then downtrend might continue.
Nonetheless, there were no confirmations of the trend reversal and the probability of the support breakout remains extremely high. If/when this occurs, USD/JPY will continue the journey south, towards one of the next Fibonacci support levels.
The first support is seen at 103.70 and confirmed by two Fibs, 161.8% and 78.6% retracement levels. It is also worth noting that the first support corresponds to the lower trendline of the descending channel. But if 103.70 will get broken, the further price decline can easily be expected. In this case, USD/JPY should continue the decline towards 102.70 support area, which is confirmed by 261.2% and 88.6% Fibonacci retracement levels.
In regards to the upside potential, as has been mention already, there is a probability that USD/JPY will re-test 106.00 key long-term resistance. But only daily break and close above this level could completely invalidate bearish outlook.
Bias: Strongly bearish while below 106.00
Potential Resistance Zone: 105.30 – 106.00
Potential Targets: 103.70, 102.70
Have a profitable trading!