USDJPY has been on a strong uptrend for the past months but it appears that a short-term reversal is about to take place. The pair has recently formed a double top pattern, which is a classic reversal signal, and price just broke below the neckline support at the 108.00 major psychological level.
This could push USDJPY down by as much as 200 pips, which is the same height as the formation. Stochastic is in the oversold region though, indicating that a bounce is bound to take place sooner or later. If a strong bounce happens, USDJPY could make its way back to the tops around the 110.00 major psychological mark and form a triple top pattern.
USDJPY Forex Forecasts
On the other hand, continued declines could lead to a test of the 106.00 major psychological support, which has acted as an area of interest. Further USDJPY declines below this area might lead to a drop to 104.00 or perhaps until the longer-term support zone at the 101.00 major psychological level.
The path of least resistance for USDJPY to the upside though, as the bout of dollar weakness recently is seen to be a mere market correction. After all, US data remains much stronger compared to that of Japan and the Fed is closer to tightening than the BOJ.
Event risks for this USDJPY trade today include the US retail sales release, which might have a strong showing thanks to the recent surge in hiring. After all, the NFP printed better than expected results and renewed demand for the dollar, although the FOMC minutes revealed that policymakers are not too keen about tightening monetary policy just yet. Strong data could be met with a bit of skepticism and push USDJPY lower until the next visible support zones near the 106.00-107.00 area.
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