FX.co ★ USD/JPY Focuses On Correction!

USD/JPY is trading in the red zone and it seems heavy enough to approach and reach fresh lows soon. Technically, it has taken out some critical and major support levels, so a further drop is expected.

The risk-on rally is back, so the greenback may lose ground versus all its rivals. The USD could be saved from the downside only by an unexpected growth registered by the NFP. As you already know, the US is to release the Non-Farm Payrolls, Average Hourly Earnings, and the Unemployment Rate later today. Some poor figures caused by the COVID-19 second wave could ruin the dollar which will depreciate further.

USD/JPY Broader Drop Signaled

As you can see on the H4 chart, USD/JPY has registered a downside breakout from the down channel signaling a sharp drop in the short-term. It also traded under the first warning line (wl1) of the former ascending pitchfork, so a deeper drop is natural.

The aggressive breakdown through the 104.00 psychological level and the new lower low of 103.36 validates a broader downside movement. USD/JPY tries to stabilize under the S2 (103.54) level, so the next downside target is seen at the R3 (103.06) level.

Though, USD/JPY could come back to test and retest the warning line (wl1), the channel's downside line, and the 104.00 level before dropping deeper. Such a temporary rebound could help us to go short again.

• USD/JPY Trading Tips

The channel's downside breakout and the new lower low signaled to sell this pair. Still, USD/JPY could recover a little in the upcoming hours. So, we may have a great selling opportunity after the rate comes back to test and retest the broken downside obstacles.

The 250% Fibonacci line could be used as a downside target. A breakdown through it suggests a deeper drop towards the second warning line (wl2). The downside scenario could be invalidated only by a major pin bar (Hammer or by a huge bullish engulfing pattern).