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USD/JPY has developed a minor Head and Shoulders pattern on the H4 chart. The pair has pressured the neckline again, but we have only a false breakdown at this moment. I believe that a valid breakdown and a validation will signal a potential corrective phase on USD/JPY.
USD/JPY may drop as the JP225 index has plunged today, the index has opened with a gap down and it seems very heavy in the short term. When JP225 drops, the Japanese Yen should increase versus other major currencies, not only versus the US dollar.
USD/JPY failed to reach and retest the median line (ML), orange line, of the ascending pitchfork signaling the overbought market, so a valid breakdown below the minor uptrend line (neckline) could send the rate at least till the 61.8% retracement level.
The pair wasn't able to reach the 110.21 static resistance, a minor correction could come as the MACD and Stochastic have shown a bearish divergence. When the price fails to reach the median line (ML) of an ascending pitchfork, it should reverse, that's why I'm expecting a potential bearish momentum.
If the pattern is confirmed, we could open a short position with a Stop Loss above the 109.95 previous high. USD/JPY is somehow expected to drop by 50 pips in the short term, but it could drop deeper if it stabilizes below the 61.8% retracement level. The major downside target is seen at the sliding parallel line (SL1).
The chart pattern could be invalidated if the price jumps above the 109.95 shoulder and if it reaches the median line (ML).
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