USD/JPY – Light At The End Of The Tunnel?

USD/JPY can’t seem to find the bottom after swinging down steeply in recent days. Or will today’s price action turn out to be a meaningful turnaround?

Let’s recall our Tuesday’s commentary:

(…) Today’s downswing brought the exchange rate below the black support line that is based on previous lows. It suggests that further deterioration may be just around the corner – especially when we factor in the sell signals generated by the daily indicators.

If this is the case and the pair extends losses from here, where could the bears aim to go? We would likely see not only a test of the next green support zone based on the mid-November lows, but also a test of the lows created at the turn of October and November, which is where our initial downside target currently is.

There’s one more thing, and it’s the head and shoulders formation in the making. The exchange rate dropping below the lower black support line (that would be the neck line) could trigger a move even to around 107.32. This is where the size of the downward move would correspond to the height of the head-and-shoulders formation.

USD/JPY has indeed moved sharply lower after the breakdown below the black support lines based on the previous lows, making our short positions even more profitable.

This decline brought the exchange rate below the mentioned green support zone, which doesn’t bode well for the bulls – especially when we factor in today’s bearish orange gap.

While the buyers pushed the pair higher to trade above 108.00, the exchange rate is still trading not only below the upper border of the gap, but also below the previously broken green line. This suggests that today’s rebound could be nothing more than a verification of the earlier breakdown.

Additionally, there are no buy signals at the moment that could encourage the buyers to act. Connecting the dots, as long as the gap is open, another attempt to move lower should not surprise us. The downswing would be supported by the above-mentioned head and shoulders formation.

Therefore, we decided to move our stop-loss order lower to protect some of our gains, and move lower our downside target at the same time.

We hope you enjoyed reading the above free analysis, and we encourage you to read today's Forex Trading Alert - this analysis' full version. There, we discuss also the current situation in EUR/USD and GBP/USD. The full Alert includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones. There's no risk in subscribing right away, because there's a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

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Nadia Simmons

Forex & Oil Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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