USD/JPY showing signs of a short-term top
Dollar watchers will be well aware of the phenomenal run it has had against the Japanese yen since a low was made over the US election in November at 101.15. The pair peaked in mid-December at 118.66 and has mostly drifted sideways over the past three weeks.
We hit a low of 116.02 right at the end of December. Since then we have made a steady recovery to re-test that high at 118.66. Or very close to it at least with a high yesterday at 118.60.
This leaves quite a clear short-term double top pattern in place. Although the market is certainly no longer overbought on the daily chart, there is evidence of a negatively diverging stochastic to back up the theory of a short-term correction in the days ahead.
In the daily chart above you can see how yesterday’s candle forms a doji with the close only a little above the open, leaving a long upper wick. This helps to confirm that the double top is in place. We now look for an initial move towards the first support area at 117.20/00.
We have not hit any major long-term resistance. This leads me to believe that, if we do see a correction as I expect, this will offer a nice buying opportunity. Eventually the bull market is likely to resume and a move up to the 120.00 area is likely. I would not rule out a test of the 2016 high at 121.68, which was set on the last week of February, in the months ahead.
The weekly chart
The weekly chart above shows how overbought we have been for about a month now. A significant correction is overdue. This is all part of a healthy bull market, but how far down can we go?
A break below the first support area at 117.20/00 would be further confirmation of weakness to come. We are then likely to target the two-week low at 116.10/116.00. At this stage we could be oversold in the short term, so a bounce from here would not surprise.
We may even make it back up to the 117.00 level. However, eventually a break below 116.00 does look likely to target 115.50/40.
My overall target for the correction is 114.80/114.60, which I think would be an excellent buying opportunity. There would be a strong chance that the bull trend would resume from here.
Technical Analyst & Trader
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