Two levels are key for USDJPY and will determine whether the price action of the last six months has been a correction only or something more bearish, says Tony Sycamore, Director Institutional Foreign Exchange at Commonwealth Bank of Australia.
Sycamore is unclear as to whether the 2015 high at 125.86 completed a Wave V or Wave III high. If it was Wave V, then a deeper pullback is likely, whereas if it was Wave III, then the current pullback is nearing completion and the 114.00 support should hold. He says two levels are key to determining the correct interpretation (see Chart):
The first level is 116.20. Sycamore says an ability to hold 114.20/00 and close above 116.20 is a bullish development that suggests the price action of the last six months is a corrective pullback. His trade idea for this scenario is to buy if the 114.20 level holds, with a take profit at 116.30 and a stop loss placed at 113.00.
The second level is 113.70. Sycamore says a break of the 114.20/00 support and a move down through 113.70 would open up a move towards 110.00 and possibly as low as 106.50, which is a 38.2% retracement of the entire rally from 75.35 to 125.86. His trade idea for this scenario is to sell at 113.69 with a stop loss placed at 115.70 and a target take profit sub 110.00, possibly towards 106.50.