The USDJPY is once again showing signs of strength. Since late January the pair has carved out a series of lows that lead me to believe a short-term bottom is in place.
If you notice in the daily chart below, buyers have repeatedly tested a trend line that extends from the January 19th high. And while I wouldn’t label this structure an inverse head and shoulders pattern, it does appear to have bullish implications.
I can’t call it a head and shoulders due to the February 28th swing low. It’s marginally above the February low, which precludes it from being labeled as such.
Despite this imperfection, a rounded bottom like this can sometimes trigger a similar reaction. Also, last week’s price action formed a bullish engulfing candle. Another indication that the bulls are gearing up for a rally.
At the moment, buyers have managed a 4-hour close above trend line resistance at 114.40 but have yet to secure a session close above it.
But even if they do manage a daily close above the 114.40 area, I won’t entertain an entry, at least not yet. The horizontal resistance level at 115.10 doesn’t allow enough room for a favorable trade.
The 115.10 area formerly served as support on January 6th before transitioning to resistance between the 13th and 27th of January. It’s also the 50% retracement from the December 2016 high to the current 2017 low.
A daily close above 115.10 would pave the way for a move back toward the 117.00 handle. This area acted as a key pivot for the pair between December 19th and January 9th.
It will take a daily close above 117.00 to expose the double top near 118.60. Key support at the moment comes in at 113.25. If the USDJPY closes today above trend line resistance, watch for the 114.30/40 area to attract bids if tested.
If it doesn’t, we could see the pair slide back toward the 113.25 area over the coming sessions.
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