USD/JPY Analysis: Price Extending Drop Around 109 as Nikkei Plunges

The USD/JPY analysis drops like a rock right now, and it could reach fresh new lows soon as the Nikkei and the Dollar Index are trading in the red. However, it remains to see what will really happen as the Dollar Index could resume its growth if it stays above 92.82 former high.

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DXY’s current decline could be only a temporary one. The US will release its Building Permits and the Housing Starts tomorrow, while Japan will publish the National Core CPI. Personally, I don’t believe that these economic figures could change the sentiment.

The bias is bearish after escaping from a major up-channel. Now it has registered a new lower low, activating a deeper decline. JP225 (Nikkei) drops at the moment of writing. Further decline could signal that the Yen could resume its appreciation.

USD/JPY technical analysis: Breakout or reversal?

The USD/JPY pair failed to stay above the 38.2% retracement level and now targets the S2 (109.16) and the 61.8% retracement level. These levels are seen as downside targets. Dropping below the S1 (109.59) and below 50%, the retracement level signaled more declines.

The descending pitchfork’s median line (ML) is seen as a major downside target. USD/JPY could extend its sell-off as long as it stays under the upside 50% Fibonacci line. Also, its failure to come back higher towards the upper median line (UML) indicates a larger decline.

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We cannot exclude temporary rebounds in the short term, but the bias remains bearish as long as we don’t get strong upside reversal patterns. A temporary rebound could help us to catch a new downside movement.

Now is too late to go short as the pair could find support around the 61.8% level. A valid breakdown through this obstacle could announce a potential downside reversal and a decline in the median line (ML).

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