Why I think USD/JPY will retest the recent lows

Today I want to take a look at USD/JPY. The Japanese Yen has done some
very interesting things against all of the major currencies lately, causing all
kinds of volatility. Just look at the daily chart of EUR/JPY below and
you’ll see what I mean. Every time the market seems like it’s all settled
in to an uptrend something dramatic happens to knock everyone for a loop.

That has not been the case for USD/JPY, though. As the chart below
shows, the volatility over the last several weeks has been nowhere near as
prominent as in the crosses like EUR/JPY. That is an obvious function of a
general negative sentiment toward the Dollar, which isn’t something that’s going
away anytime soon.

Last week saw USD/JPY bottom out and rebound strongly, a move which continued
to start this week. Observe something very interesting, though.
Notice how on the day the market bottomed, it dipped down to a new low, but then
reversed quite sharply. Now look at Monday’s action – the second to last
candle. See a similarity? Yesterday the market surged to a new high,
then failed and ended lower.

My take on this is that just like that reversal last week announced a few
days of upward action, yesterday’s failure heralds what is likely to be a retest
of the recent bottom. It’s a bit too early to know whether we’re looking
at the early days of the next leg down in USD/JPY. It could just be a
consolidation marking the end of this decline. Either way, there’s a decent
selling opportunity setting up here, one with a nice reward to risk profile.

John Forman is the author of Amazon Top Seller
The Essentials of Trading
and a near 20-year veteran of trading and investing across a wide array of
markets and instruments. He is publisher of the
Anduril Trading Report,
which documents the analysis and trading he does for the Anduril Trading
Portfolio. John also oversaw the compilation of the Opportunities in
Forex Calendar Trading Patterns
research report. For a free sample of
that research as it pertains to the month of June,
click here.