USD/JPY Technical Analysis: How Strong Are Resistance Levels?

What is a Support Zone?

A support zone is a price range where bearish momentum is receding and bullish momentum is advancing. They can identify areas where price action has a chance to reverse to the upside and a support zone offers a more reliable technical snapshot than a single price point such as an intra-day low.

USD/JPY Technical Trading Set-Up - Breakdown Scenario

  • Short Entry @ 108.100
  • Take Profit @ 104.750
  • Stop Loss @ 109.400
  • Downside Potential: 335 pips
  • Upside Risk: 130 pips
  • Risk/Reward Ratio: 2.58

The breakdown scenario remains the dominant outcome for the USD/JPY given the technical breakdown in price action and the rise in bearish indicators. While the USD/JPY has limited room to the upside, until it will enter its resistance zone and the gap to the 61.8 Fibonacci Retracement Fan Resistance Level will narrow, the loss in bullish momentum may prevent this currency pair to push much further to the upside. A breakout above the twin resistance level is not expected, unless a fundamental event can catapult price action higher. Next week’s US Fed meeting where another 25 basis point interest rate cut is expected further limits upside potential.

What is a Breakdown?

A breakdown is the opposite of a breakout and occurs when price action moves below a support or resistance zone. A breakdown below a resistance zone could suggest a short-term move such as profit taking by forex traders or a long-term move such as a trend reversal from bullish to bearish. A breakdown below a support zone indicates a strong bearish trend and the extension of the downtrend.

USD/JPY Technical Trading Set-Up - Limited Breakout Potential

  • Long Entry @ 109.500
  • Take Profit @ 110.650
  • Stop Loss @ 108.950
  • Upside Potential: 115 pips
  • Downside Risk: 55 pips
  • Risk/Reward Ratio: 2.09

(Click on image to enlarge)

USDJPY

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