After the fairly impressive growth shown by the USD/JPY pair last week, the current five-day trading session is experiencing a correction in the exchange rate.
Investors are actively moving to safe assets now that outbreaks of coronavirus are observed in Italy, South Korea, and Iran. Against this background, the Japanese yen as a safe-haven currency began to be in demand. I wonder why this hasn’t happened before. It is clear that everything has its time, especially since the dollar/yen pair reached a strong technical zone of 112.00-112.40.
As you can see, trading on USD/JPY opened with a bearish gap. At the time of writing, the current weekly candle is inside the big white, which is classified as a reversal model of the harami candlestick analysis. This model is also called “pregnant”. If everything ends this way and the current candle remains inside the previous one, a good signal for selling the pair will appear. However, the Harami model is quite insidious and requires confirmation. For now, we will mark the likely USD/JPY targets at the top and bottom.
To continue the upward scenario, the bulls on the instrument need to raise the quote above the previous highs of 112.23 and close weekly trades above this mark. I would like to express my personal opinion that it will be quite difficult to do this. First, the auction opened with a price gap down. Second, the Japanese yen has increased demand as a safe asset.
In the current situation, we are seeing a pullback to the broken resistance of 110.30, which was difficult to assume at the end of last week. However, the market never ceases to surprise.
I believe that around 110.30, a serious fight between bulls and bears will start, and we will try to determine the prospects for this on lower timeframes.
We see that the Kijun line of the Ichimoku indicator is located right under the broken resistance of 110.30, which along with the broken level can provide good support for the pair and return the quote to growth.
You can try aggressive and risky buying near 110.30. It is less risky to wait for the end of today’s trading and the closing price. If Tuesday’s session ends below 110.30, and even more so at 110.14, purchases will have to be postponed until better times. In this case, a false breakdown of the resistance zone of 110.30-110.14 is not excluded.
When the pair is restored from the current values and a candle is formed with a long lower shadow and the closing price above 110.30, the signal for opening long positions will become more obvious.
It is difficult to call a sufficiently intensive decline, which is a corrective pullback. The pair has fallen below the 50 simple moving average and is testing for a break down the 89 exponential. If the price is fixed at 89 EMA, the next target will be the 200 exponential moving average, which is located at 110.10.
In my opinion, this is the last defense of the USD/JPY bulls. In the event of a breakdown of the 200 EMA, the decline will probably continue and its next target will be the price area of 109.65-109.55.
The situation for USD/JPY at the moment is such that giving some specific trading recommendations is like pointing a finger at the sky. It is necessary to observe the pair’s behavior in the price zone of 110.30-110.14, see the closing price of today’s trading, and carefully monitor the candlestick signals on the four-hour and hourly charts. In a day or two, we will return to this interesting currency pair and try to find the optimal entry points. In the meantime, due to the unclear situation, I recommend staying out of the market for USD/JPY.
Have a nice day!