The pair traded sideways during last year as bullish momentum decreased. During August 2015, we saw a strong correction as prices fell to as low as 116.18 level before to bounce back again.
After that, USD/JPY did many attempts to break above 123.75 resistance level but failed, and the pair reversed lower sharply, warning about a potential trend reversal in 2016.
Technically, the pair broke below a bullish trendline drawn from July 2012 lows. In addition, the RSI indicator has shown a bearish divergence around 125.80 top, which keep the probability of a trend reversal to the downside valid in the next weeks.
In the meantime, the RSI slid below its neutrality zone in the weekly chart, reinforcing the bearish outlook.
The s expected scenario is to see the pair breaking under black Monday lows at 116.18, which may clear the way for an acceleration lower towards 115.55-113.10 zone before to see buyers again.
Looking at the short-term structure, the pair is stuck inside a 100 pips range, located between 118.30 in the upside and 117.20 in the downside. Hence, prices should keep trading in a choppy manner until we see a clear break outside of this band.
Consequently, traders should stay in a –wait and see- mode for the next hours, to have more clues about the next move in this pair from a near-term standpoint.
In sum, we believe that the trend has turned bearish in the daily chart and as far as 119.70 peak is holding, downside risks are likely to persist and any recovery is likely to be short-lived.
Traders should focus on 117.20 level followed by 116.20 in extension, as a break below it should trigger a big sell-off in the pair.
Finally, and from a swing trading perspective, we expect the pair to weaken in the first quarter of this year as far as prices are trading below 120.60 level, and we are looking for an acceleration lower in the direction of 115.00 zone in the coming weeks.
In the flipside, a daily close above 120.60 peak will change this bearish view.
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