USDJPY appears to have a made a convincing break below the head and shoulders neckline on its daily time frame. This suggests that the pair could be in for more longer-term losses, possibly amounting to around 900 pips or the same height as the chart formation.
The 100 SMA crossed below the longer-term 200 SMA, confirming that the path of least resistance is to the downside. Also, stochastic and RSI are both on the way down and still haven’t made it to the oversold area, which means that there’s more bearish pressure left.
However, a price bounce might still be possible if market conditions shift once more. This could spur a pullback to the broken support around 116.50 to 117.00 before price resumes its drop.
Event risks for this setup include Fed head Yellen’s speech tomorrow, as any remarks on policy could push the dollar in a strong direction. Fed officials last week have already pointed out that the inflation outlook is looking grim and that dollar gains might continue to put a lid on price pressures, reducing hopes of a rate in March.
