Looking at the USDJPY technical chart, we can clearly identify a lower lows pattern, which began in November 2015 and continues until today. The pair has continuously attempted to recover and break above its previous top, but without success.
This is likely to continue over the next few weeks and months as the Bank of Japan adopts a ‘wait and see’ approach, particularly in light of the latest economic releases which have shown some improvement, while the U.S. Federal Reserve looks more likely to delay a rate hike once again following the recent jobs report.
Putting all this data together, the USDJPY has room to decline further. However, an upside retracement is also possible, especially given that the daily technical indicators are over sold. Notwithstanding, any upside retracement the pair should remain below the previous top which stands now at 111.60’s.
A view of the downside reveals that the first immediate support stands at 105.55, which represents this year’s low. A break through that support could confirm another downside wave in the coming weeks.
Here traders need to be very cautious as a potential move like this needs a monthly close confirmation. In other words closing the month of June below 105.50’s would be significant, as it would clear the way in the medium term for another leg lower, and might test 101.80’s by the end of the year.