USD/JPY tumbled on Wednesday, falling below the key support zone of 105.00, thereby completing a “Head and Shoulders” formation on the 4-hour chart. With that in mind, we would consider the short-term outlook to be negative for now.
If the bears are willing to stay in the driver’s seat, we would expect them to push the battle down to the 104.40 barrier, which is defined as a support by the low of September 22nd. If they don’t stop there, we may experience extensions towards the 104.00 zone, marked by the low of the day before.
Taking a look at our short-term oscillators, we see that the RSI drifted lower and just touched its toe below the 30 line, while the MACD lies below both its zero and trigger lines, pointing down. Both indicators detect strong downside speed and support the notion for further declines in this exchange rate.
On the upside, we would like to see a strong recovery back above 105.75 before we abandon the bearish case. Such a move would confirm a forthcoming higher high on the 4-hour chart and may initially target the highs of October 7th and 8th, at around 106.10. If that level is not able to stop the advance, the next resistance to consider may be the 106.38 level, marked by the highs of September 7th and 8th, or the 106.55 hurdle, marked by the peak of September 3rd.