- Bulls need a break above the 200-day MA located at 110.17.
- The pair could create head-and-shoulder reversal pattern if the bulls fail to build on a corrective rally.
The USD/JPY rose to 109.73 on Friday, having created long-tailed inside day candle on Wednesday and Thursday,
However, the recovery from 108.11 (May 29 low) to 109.73 looks like a corrective rally and only a break above the 200-day moving average (MA), currently located at 110.17, would confirm a bullish revival.
Daily chart
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The pair's rebound from the rising 50-day MA has established the moving average as a strong support. Currently, the 50-day MA is lined up at 108.53. Further, the ascending (bullish) 10-week MA is located at 108.85. Interestingly, 108.82 is the 38.2 percent Fibonacci retracement of the rally from 104.63 to 111.40.
A daily close above 110.17 would add credence to higher lows (as represented by long-tailed inside days) along the rising (bullish) 50-day MA and would open up upside towards 111.70 - resistance of trendline sloping downwards from the August 2015 high and December 2015 high.
Meanwhile, a failure to hold above the session low of 109.45 would add credence to the descending (bearish) 10-day MA and could yield a drop to strong support zone of 108.85-108.53.
Also, the pair may end up creating a head-and-shoulders pattern with the neckline support of 108.15 if the pair fails to scale the 200-day MA in the next day or two.
A daily close below 108.15 would confirm a head-and-shoulders breakdown (a bullish-to-bearish trend change) and would open the doors to 104.90 - target as per the measured height method).
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