Remember the inverse head and shoulders that we pointed out on the daily time frame of USDJPY? It still looks valid for now, but maybe not for long.
An inverse head and shoulders chart pattern is typically interpreted as a bullish indicator. It is characterized by a market that has made lower lows followed by a higher low. The lowest of the three lows is considered to be the head. With a bit of imagination, you will be able to see how the chart pattern got its name–it looks like the silhouette of a person who is upside-down!
This chart pattern is apparent on the daily time frame of USDJPY. However, the recent sell-off has pushed the currency pair below support at the rising trend line from connecting the lows of August 26, October 4, and November 1.
On the 4-hour time frame, we can see that it has bounced off support on the 200 SMA. However, for the inverse head and shoulders to be valid, buyers will need to push past the confluence of resistance around 108.80. This area coincides with: (1) 50% Fib level drawing from the high of November 12 to yesterday’s low; (2) 100 SMA, and; (3) resistance at the broken rising trend line from the daily time frame. A break above this level could push USDJPY to re-test resistance at the neckline and maybe even rally up to resistance at 110.55 where it formed a high in May 21.
On the other hand, if sellers dominate today’s trading, the next support level for the currency pair is at 107.86 which is the low for November 1.Download our latest quarterly market outlook for our longer-term trade ideas.