Featured Trade: USD/JPY rallied towards key minor inflection zone with bearish signals ahead of BOJ

A potential minor bearish reversal looms for USD/JPY

Short-term technical outlook on USD/JPY (Wed 31 Oct)



Key elements

  • USD/JPY did a remarkable reversal from its key medium-term support zone of 111.60/50 after it printed a low of 111.37 on last Fri, 26 Oct. It rallied by 197 pips to print a current intraday high of 113.32 in today, 31 Oct Asian session ahead of Japanese central bank, BOJ monetary policy announcement together with its Q3 economic outlook report out later between 0300-0400 GMT. The on-going rally is the steepest in terms of price movement and time since its choppy evolution on 15 Oct 2018 low of 111.59 (see daily & 1 hour chart).
  • Interestingly, the current intraday high of 113.32 is right below a minor inflection/pivotal resistance of 113.40/50 which is defined by the former minor congestion area of 28 Sep/09 Oct 2018 and a Fibonacci projection cluster.
  • Elliot Wave/fractal analysis suggests that the choppy range movement that started from its 15 Oct 2018 low of 111.59 is likely to be a corrective expanded a/-b/-c/ “Flat/sideways range configuration. In addition, the micro/minute wave structure of its final c/ upleg structure may have reached a terminal point to end the “Flat/sideways range” where at least a minor bearish reversal may materialise next.
  • Shorter-term hourly price action has shaped a bearish “Gravestone Doji” candlestick pattern coupled with a bearish divergence signal seen in the 1-hour Stochastic oscillator after it hit an extreme overbought level. These observations suggest that the upside momentum of the recent up move since last Fri, 26 Oct has started to abate.

Key Levels (1 to 3 days)

Pivot (key resistance): 113.40/50

Supports: 112.70, 112.30 & 111.60

Next resistance: 114.10/50

Conclusion

The recent rally seen in the USD/JPY has reached a minor key inflection zone where an imminent potential bearish reversal may occur next. If the 113.40/50 key short-term pivotal resistance is not surpassed, the pair is likely to shape a potential down move to target the near-term supports of 112.70 and 112.30 (the ascending channel support from 26 Mar 2018 low). An hourly close below 112.30 is likely to reinforce a further potential decline to retest the 111.60 key medium-term support.

On the other hand, a clearance above 113.50 invalidates the bearish reversal scenario for a further squeeze up to retest the 114.10/50 medium-term range resistance in place since 10 May 2017.

Charts are from eSignal



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