The USD-JPY surprised many trades during the second part of December. Just at seemed that the price would challenge the post intervention high of 85.60, this pair changed direction. It sold off, falling from 84.50 to 80.90 in a span of about 2 weeks.
In the context of the most recent price behavior, the 360 pips was a big move and it happened relatively quickly. In fact, both the extent and the speed of this price swing suggest that the USD-JPY could be oversold in the short-term.
On the daily chart of this pair, the Stochastic indicator dropped deep into the oversold zone, showing the lowest reading in many months. In addition, the USD-JPY moved outside the lower band of the Bollinger Bands indicator and managed to stay there for a few days now. This means that the price is far away from the recent “median” value, suggesting a possible correction soon.
The USD-JPY is still within a striking distance of the major recent low of 80.23 as well as the all time low of 79.75. From here on the price will either establish a long-term double bottom or start a new major bearish price swing, events that will determine the market direction for a long time.