USD/JPY turns in Hammer, reversal or test of all-time lows ahead?
Price action in USD/JPY turned in a hammer candlestick pattern on February 1st and followed with a Dragon fly doji candlestick pattern confirming the possibility of a bottom being formed around this support level at 76.19. The pair has broken this level but failed to close below 76.19 for the past three days. In the medium term, the pair is locked between a downward bear trend resistance off May and July 2011 highs and January 2012 high, and a bear trend support off March and October 2011 low.
A drop and close below the short-term support level at 76.19, could give scope to a drop towards the all-time low of 75.57. We will wait and see if forex traders will test Japanese authorities’ resolve and test the all-time low. The pair is most likely to then test the bear trend support now around 75.20. At these levels we would expect the Japanese Finance ministry to intervene, after repeatedly reiterating that they will take action to counter excessive JPY strength. To the upside, a break of initial resistance represented by the 20-day moving average at 76.83 is needed to give rise to a fresh bullish structure to test the bear trend resistance, now at around 78.10.
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