USD/JPY has opened the week with a huge negative gap. Now it is trading at 101.96, much lower versus the 105.35 Friday's closing price. The global risks are dragging the price down, while the yen is rallying as the Nikkei is extending its losses.
The pair broke down from a major triangle, so the downside seems confirmed in the medium to the long term. USD/JPY may drop further if the JP225 and the USDX continue to decrease. Maybe you wonder how long this downside movement could be?
USD/JPY has ignored the 104.62 static support and the S2 (104.53) level. Now it has reached the next downside target - the S3 (101.56) level. The next major obstacle is seen at the median line (ML) of the major descending pitchfork, you can see that the price was stopped and rejected by this line in the past.
We'll see if the price comes back to retest the broken 104.62 level and to try to close the current gap. USD/JPY could increase only if the JP225 rebounds in the short term. The price moved sideways inside the triangle, the false breakout on the upside signaled a potential valid breakdown and a further drop.
- TRADING RECOMMENDATION
We had a great selling opportunity after USD/JPY had registered the false breakout from the major chart pattern. Right now you should await for rebound before going short again. A 104.62 retest and rejection could give us a great chance to open short positions. Technically, the triangle breakdown has signaled a potential drop of more than 1000 pips.
The median line (ML) represents a critical support as well, a valid breakdown will open the door for a further drop, so this scenario will bring us a short opportunity as well. A further drop could be invalidated only if USD/JPY fails to reach the median line (ML), or if we only have false breakdown below this downside obstacle.
