USDJPY might be preparing to complete its counter trend rally by pushing higher towards 108.50 levels before giving in to bears again. A sharp rally still remains probable as long as USDJPY stays above 106.50, going forward.
Structurally, USDJPY remains bearish until 112.22 resistance holds well. The earlier drop from 112.22 through 101.18 was a break out from bearish triangle, Wave (1) on the chart. Further, the counter trend rally towards 111.75 could be labelled as Wave (2). High probability remains that Wave (3) is underway towards 101.18, going forward.
USDJPY ideally needs to stay below 111.75 levels to keep the above bearish structure intact. Looking further into the wave counts, the drop between 111.75 and 106.90 could be labelled as Wave 1. The counter trend rally towards 109.90 could be lower degree Wave 2 on the chart.
If the above counts are correct, a Wave 3 is probably underway towards 101.50/60. Going further, the sub waves within Wave 3 have begun to unfold. The drop between 109.90 and 106.50 could be wave I (not labelled here). Bulls might be working on the counter trend rally towards 108.50, to terminate potential wave ii, within Wave 3.
Alternately, a continued drop below 106.50 would confirm that USDJPY might have carved a shallow wave ii around 107.65, and is proceeding towards 101.50. Either way, USDJPY is expected to reverse lower as wave iii of 3 unfolds. Please note, the above drop should be very sharp as third wave unfolds at multiple degrees.
Short against 112.22, targeting below 101.50
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