USDJPY Reversal Starts With a Bang

On December 17th I wrote how the clues pointed to a USDJPY break lower, not higher.

That turned out to be the understatement of 2018.

At the time, USDJPY was still trading within the wedge pattern I first pointed out on December 2nd.

But by the 18th, sellers had cleared wedge support at 112.60.

That set up a short opportunity. And the next 48 hours played out perfectly for sellers.

Notice how USDJPY retested former wedge support as new resistance on the 18th. That high of 112.66 offered a prime opportunity to sell the pair.

Thursday’s 180-pip selloff was unexpected but not surprising.

We know how the yen can react to risk aversion, and the S&P 500 had already signaled a key breakdown of its own.

Yesterday’s low for the USDJPY was 110.80. You may recall that the key level below 111.70 was 110.70. I’ve talked about both levels for several weeks now.

Remember that these levels are often areas or zones. As such, yesterday’s bounce from 110.80 confirms that support for the pair lies somewhere between 110.70 and 110.80.

So where to from here?

Yesterday’s 111.28 close means that any retest of the 111.70 area should attract sellers.

You can even see where 111.70 played a role on Thursday if you drill down to the 1-hour time frame.

USDJPY is still a sell in my opinion. 

However, we could see near-term strength given the aggressiveness of yesterday’s decline.

I’m also still targeting 108.00 which I discussed on December 11th.

If USDJPY fails to retest 111.70 as new resistance, the alternative is to wait for a daily close below the 110.70/80 support area.

That would expose 109.80 followed by my longer-term target at 108.00.

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