We have been advocating short positions in USD/JPY all the way down but looking at today’s chart it’s clear that some caution is warranted. The pair is stabilizing and oversold conditions point to a rebound.
Today’s daily candle forms a bullish hammer reversal pattern. It also forms a double-bottom at 86.96, which was also the low last Wednesday. Further strengthening the case are a multitude of oversold signals, including the RSI, which is just a shade above 30.
A bullish retacement phase would be confirmed by a rally above resistance at 88.05 – 88.15. A reasonable retracement would be back up to 89.25. On the other hand, if we are unable to rally above resistance at 88.05 in the next day or two, we would expect a swift fall toward 0.8450.