In my latest chart analysis post, I highlighted the area shaded in red -on the weekly chart- as a potential reversal zone, or at least an upside barrier for the USDJPY. Indeed, as we tested that region the price found resistance and retreated.
The shaded area is a confluence of a major horizontal resistance(multiple swing highs), and the 78.6 Fibonacci retracement for the overall A-B wave. In addition to the 2.0 extension level for the latest downside pullback 1-2 wave. RSI was overbought.
Moving to the lower time frame daily chart, the recent bullish wave was rejected twice. The price formed two lower highs(yet very close), forming a double top formation. The recent break below 113.25 completed the pattern signaling possible further weakness. As the price managed to form lower highs and lower lows, the short term trend structure is bearish now.
While multiple technicalities point to further weakness, we shouldn’t ignore the overall longer term bullish trend the price is currently in. Therefore, I’ll speculate on a short term move, shorting upside pullbacks towards the broken support 113.25-113.50, for a better risk-reward. Targeting the next potential support shaded area, where the 50-days simple moving average also resides. Both among 112.00-111.60. The trade setup invalidation might be on a breakout back above 113.70.