Yesterday I pointed out a USDJPY pattern with bearish implications.
The broadening wedge that extends from the January 4th low signaled exhaustion from buyers.
This was in addition to Wednesday’s Fed-induced break below 111.00.
In fact, that close below 111.00 was our cue to look lower.
Here’s what I wrote 24 hours before Wednesday’s FOMC:
What about a short here?
Well, remember that 111.00 is a must-hold level for buyers.
At least that’s my interpretation of the situation.
That means a daily close below 111.00 could present an opportunity to short USDJPY for a move to the 110.10 area.
And if the pair does roll over this week, it could signal the start of a broader correction toward 108.70.
Despite Thursday’s strength, USDJPY buyers failed to retake the 111.00 handle which was serving as new resistance.
Not only did sellers take out Thursday’s low early in Friday’s session, but they also cleared broadening wedge support at 110.40/50.
They also appear to have broken below the 110.00/10 area.
This leads me to believe the USDJPY will continue to weaken next week.
Although the 110.00/10 area may attract sellers early next week, there’s a chance we could see a move back to former wedge support closer to 110.40/50.
Keep that in mind on Monday in case you decide to pursue a USDJPY short position.
Now let’s discuss a few key support levels…
As I wrote yesterday, the next critical horizontal level below 110.00/10 comes in at 108.70.
But the objective here, in my opinion, is the pattern’s inception point at 107.60.
Only a daily close back above former wedge support (new resistance) at 110.40/50 would negate my bearish outlook.
As for news, next week’s event calendar is relatively quiet.
However, that doesn’t mean USDJPY will be uneventful.
Some of the biggest moves from a risk-sensitive pair like USDJPY come from unscheduled events or simply a widespread shift in risk appetite.
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