By: Mike Kulej
After testing the 84.80 low from last year, the USD-JPY rebounded on Thursday, closing the day at 85.89. Shortly after that, the exchange rate moved above 86.00, prompting talks about the trend reversal.
These opinions are a little premature. Even though the support held, in spite of being undercut by about 10 pips, it does not mean that the main trend is changing. It is typical for the major market highs/lows, as this one clearly is, to hold, sometimes on multiple occasions.
This simply sets up a market correction, a rather usual behavior, which is even truer during prolonged trends. The current downtrend in USD-JPY has been under way for about five months, spanning roughly a thousand pips.
For this correction to become a reversal, the down trendline would have to be broken first. Right now, the price is still some distance away from the trendline, which, until broken, should be viewed as a likely resistance.
That could provide a low risk selling opportunity. Even when the trendline is broken, the most recent high, at 88.10, is another major resistance level. Only when the price moves above both of these obstacles, the trend can be viewed as changed, or reversed. For now, the USD-JPY is still in a downtrend, perhaps undergoing a correction.
