USD/JPY is trading in the red and it seems determined to reach fresh new lows in the nearest hours. The price has failed to stay above the 109.00 psychological level and to close the gap down from Monday.
USD/JPY is very heavy on the short term as the Nikkei index has dropped sharply today. When the JP225 index drops, the Japanese yen is set to advance versus the most major currencies.
You can see on the Daily chart that the price has tried to retest the sliding parallel line (SL) of the ascending pitchfork and the 61.8% retracement level, but it has failed and now it is dropping like a rock.
USD/JPY has risen since August 2019, it has reached the median line (ML) of the ascending pitchfork, but it has failed to make a valid breakout above this major dynamic resistance. The Nikkei's significant drop has boosted the yen. So, if the Nikkei reaches new lows, USD/JPY should drop as well.
The next downside target is at the 50% retracement level, the price could reach this obstacle as long as it is trading below the 109 level and within the descending pitchfork's body. However, the major downside target is at the sliding line (SL1), it could also be attracted by the median line (ml) of the descending pitchfork. I've drawn the descending pitchfork to catch the corrective movement, so the outlook is bearish on the Daily chart as long as the price stays below the sliding line (sl) and the upper median line (uml) of the descending pitchfork.
Conclusion
Coronavirus fears and the global risk have dragged USD/JPY down in the short term. JP225 index has developed a potential Double Top pattern on the Daily chart. If this pattern is confirmed and if the index registers a broader drop, USD/JPY could drop towards 107 - 106 area in the upcoming period.
We don't have a great selling opportunity right now because the corrective phase is in progress, but I still believe that a lower low, a valid breakdown below the 108.72 support will signal a further drop towards 108.00 psychological level.
