USD/JPY has dropped more than 200 pips after making a high of 106.97 on 27 August. The pair is currently trading at 104.62 (slightly higher from yesterday’s low of 104.27). The market price is near a trend line support area that appears to have the potential of pausing or slowing down the on-going downtrend. Apart from the trend line support, the immediate support is at 104.55 while other supports are at 104.33 and 104.24. The intraday resistance is at 104.77 and the 105.00 is likely to act as a stiff resistance area.

The pair continues to trade below the moving averages, the SMA-21 is indicating resistance at 105.70 while the SMA-50 shows the resistance at 105.94. The RSI is at 40 but shows a slight divergence. A careful analysis of the Stochastic is indicating that bearish crossover has already happened and furthermore its divergence from the on-going downtrend. The Lower Bollinger band with 2 standard deviations is also indicating support area around the market price. Although the trend is downwards, but the presence of nearby trend line support and stochastic divergence signal favors a long position against all odds.  A reasonable intraday buy entry would be near the support line (104.20). The target would be between 60 to 65 pips and tight stop-loss for this trade would be just below the 104.00 support level.

The trade is against the on-going downtrend therefore the stop-loss must remain present at all times. The pair may enter in a consolidation phase if it manages to hold above the support area and closes near or at 104.80. An intraday close below 104.20 could send the pair further lower towards 103.50.

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By LCMS Traders FX Analysis Team

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