USD/JPY plummeted over 1.3% after Bank of Japan Head Kuroda said the yen was “very weak” and that he did not expect the currency to fall further. The comments drove the currency pair to a two-week low. The reversal came as a surprise to many especially since on Friday, dollar-yen skyrocketed over a 100 pips to 125.84, following an incredible Non-Farm Payroll Report.
In my last post, I highlighted that the USD/JPY breakout is tentatively finding resistance from the 161.8% Fibonacci expansion level of the 2014 December high to low leg. Price has respected that level and has dropped off significantly following Kuroda’s comments.
The USD/JPY daily chart displays a bearish butterfly pattern that signaled a key reversal that is tentatively finding support from the 122.00 handle. While the currency pair was long overdue for a correction, this pullback may be short-lived. If we see the noted support level breached, downside momentum may target the 50-day SMA. It is around the 120.82 area that we may look to see price stabilize.
The trade: Buy USD/JPY 120.82, with a stop loss at 120.32 and take profit at 122.82. The risk/reward ratio is around 1:4
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading