USD/JPY – Reasons that the 2014-Low Will Break

USD/JPY - Reasons that the 2014-Low Will Break

The USD/JPY is poised to test its 2014-lows in the 100.75-100.85 area.

Yesterday’s FOMC meeting minutes event risk was simply a temporal pivot, meaning it provided a point in time for the market to make a directional decision.

The fundamental aspect of the minutes could be interpreted as hawkish because it focused on how the federal reserve will be exiting its QE program. However, traders have been bearish on the USD/JPY, and the decision was materialized after the release of the minutes.

USD/JPY Daily Chart (7/10)
usdjpy daily chart 7/10
(click to enlarge)

The 2014-low is about to be tested again. Here’s a reason why we should expect a bearish breakout:

1) A descending triangle structure (lower highs and a relatively flat lows) suggests bulls are losing confidence.
2) Another hidden detail about the structure within the descending triangle: Notice common highs and resistance levels that were broken to the upside, but only to be followed by a dip. The breakout simply reflects clear-out action, and if followed by a dip, signals that bears are getting stronger. The clear-out gets rid of the weak bears, but if the pair is then sold, it shows strong bears are in charge.
3) The market initially bought USD/JPY after the release of the FOMC minutes, however the rally failed to reach the 102 handle. The failed bullish attempt reveals that bears are in charge. 
4) The failed rally also showed respect to the 200-day SMA. This is similar to a slingshot signal, which is when price crosses the key moving average and then tests it as support or resistance, in this case as resistance.This adds another clue to bears taking over.

In the short-term, we are probably going to see some support around 101, as price approaches a falling channel support shown in the 4H chart. The 4H RSI is also showing oversold condition dipping below 30.

USD/JPY 4H Chart 7/10
usdjpy 7/10 4h chart
(click to enlarge)

Pullback to face Resistance:
With the bearish outlook in mind, watch for a pullback. If price stalls around 101.50-101.60 area and the 4H RSI stalls below 60, look for a bearish continuation toward the 101.75, 2014-low. Note that the 101.50-101.60 area has multiple resistance factors, including a falling trendline and a couple of support/resistance pivots.

At this point, a break above 102 will be needed to shelve the aforementioned 2014-low breakdown scenario.

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