USD/JPY Bears are lurking in the shadows and are ripe to pounce. Many fundamental factors are stirring the pot. Current FOMC speculation is a torrid time to say the least. Further U.S. rate hikes are looming. But how many hikes will there be before the end of the year? The Korean summit is sure to have a lingering impact on this currency cross. And the BOJ is most likely going to maintain its QQE “Yield Curve Control” which ironically may help instigate a greater demand for Japanese exports. For the most part these fundamental influences will weigh heavy on this market. The USD/JPY fundamentals will definitely pose a challenge for the Bullish and Bearish camps alike. But before you flip a coin for direction there are some technical factors that may foreshadow the future direction of this currency.
From the chart it is clear to see the first shoulder and the head from a Head and Shoulders pattern. The second shoulder appears to be in the process of forming. Notice the Significant Low that is establishing the Neck Line for the Head and Shoulders pattern as well as define the upward slope of the longer term rally that is still in place. Under 109.959 it is likely that the market will try to flirt with the Neck Line. A failure at this line will target the 108.825 Support level. 108.028 is the downside Critical Support level to watch out for. If the market breaks under here it would be a negative sign that the Bears are in control. 107.231 and 106.245 are the long term trend reversal objectives to the downside. The fundamental factors currently influencing the USD/JPY may help to facilitate a break back to these lower levels.
Trading to the upside is expected to be more of a challenge. Only a sustained trade above 109.959 is likely to reverse the negative outlook. A rally above 109.959 should have Bulls targeting a challenge of the 111.000 Resistance level. If the USD/JPY reverses gears and builds upside momentum then newer move Highs are on the menu. 111.530 is the rally objective. If fresh buying enters to drive this scenario, then the long term Bull trend will be intact. 114.212 is the larger long term upside target.