It’s finally happened, after months of speculating, USDJPY has closed below the 116 handle, confirming a reversal pattern that has been fifteen months in the making.
The price structure formed after a massive rally that began in late 2011 catapulted the pair 5,000 pips higher. With this in mind, there’s little arguing the fact that there is plenty of downside potential should the pair continue to unravel.
How much potential, exactly?
While not the extent of what’s possible, the measured objective for the head and shoulders pattern comes in at 106. This area lines up with former lows from October 2014 and is also the 23.6 Fibonacci retracement level when measuring from the 2011 low to the 2015 high.
From here, traders can watch for a retest of the 116 handle as new resistance. Any rejection from this area could offer a favorable opportunity to get short.
As for support, the first level to keep an eye on is the gap from late 2014 at 112.30. This level is likely to attract a decent bid. After that, the swing high from the same time period at 110 could give sellers a run for their money, but will likely fall short of propping up prices for any extended period of time.
Do keep in mind that Janet Yellen is scheduled to testify before the House Financial Services Committee on February 10th and 11th. This event is known to trigger volatility for the US dollar under normal conditions, so there’s little doubt that the greenback will fluctuate with her every word this time around.
