A few days ago I mentioned the bearish price action that was plaguing USDJPY ahead of the much-anticipated FOMC statement and BoJ announcement.
It all started with the bearish engulfing candle on July 21st. This formation occurred after retesting the pre-Brexit high of 106.80 and indicated that further weakness was likely.
Soon after, the pair carved out an ascending trend line support on the 4-hour chart. In fact, when I released Monday’s commentary, prices had already slipped below the level on a 4-hour closing basis.
However, as tempting as it may have been to enter on the July 27th retest of the level, pending announcements from both the FOMC and BoJ meant that patience was the best course of action.
Fast forward to today and we can see that the pair not only respected the trend line as new resistance but has now plummeted 420 pips from the July 27th high at 106.53.
But there’s something else at play that could present an opportunity for next week.
The 104 area that previously served as support since mid-June is at risk of failing on a daily and weekly closing basis. Should the pair close at or near current levels, a retest of the 104 region as new resistance could present a favorable opportunity to get short.
Given today’s selling pressure, there is, of course, the chance that such a retest won’t materialize. But it’s important not to chase this market, especially considering the overextended nature of current prices.
Additional weakness next week would encounter support at the 100.20 handle. A break below that would expose multiple 2013 lows near the 96.70 area.
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