USDJPY Shorts Favored Below 110.40

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On Sunday I pointed out a short-term ascending channel on the USDJPY daily time frame. Because the pair was still trading above 110.40 support at the time, the idea was to watch for a signal to go long near that level.

However, a buy signal never materialized. In the same commentary, I also mentioned what I intended to do should the pair break channel support.

Here’s what I wrote:

At the moment, I’m interested in buying the USDJPY on a pullback into the 110.40 support area. However, I’m also keenly aware of the fact that the risk-sensitive pair has been trending lower since the 2015 highs.

Without a close above the August 2015 trend line near 112.00, the ascending channel below may suggest that another leg lower is imminent.

In other words, ascending channel support must hold. If it doesn’t, I’ll reverse my outlook of a 112.00 retest and begin to watch for opportunities to get short.

The USDJPY did indeed break channel support during Wednesday’s session. You can see from the chart below where the pair also retested old support as new resistance at 110.25.

Now, the pair did manage to close yesterday’s session above the 110.00 handle, so we could see a few bids develop over the next 24 hours. That said, I do think Wednesday’s breakdown and retest were significant.

A daily close below 110.00 would expose the next key support at 108.60. Below that we have the support zone that stretches from 107.40 to 107.70.

Alternatively, a close back above former channel support would re-expose the 112.00 resistance area. At the moment, though, the pair looks vulnerable, as do several yen crosses.

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