If we focus on the four-hour chart, good resistance can be seen coming into the market on moves into the 61.8% retracement of the August sell-off at ¥121.80. We can see this proved to be strong resistance on 31 August and I would expect sellers at this level again. To become more bullish in the short-term I would want to see a break of ¥121.80.
On the support side, we can see a rising trend line in play at ¥119.30 and a break of this level would certainly garner my interest.
Specifically, if we see an initial sell-off after a break of ¥119.30, a subsequent reversal and re-test of this former support and then strong selling coming into the pair would be a strong sell signal. As we know, traders will quite often sell an initial support/trend break and a stop loss run before a reversal occurs. It is important to not get caught in the initial euphoria; it’s advisable to watch price after the break and look at the market behaviour. The best time to trade is always on a subsequent rejection of what was previously support or resistance.
The longer-term picture on USD/JPY is becoming quite interesting and while the fundamental picture favours a move higher (based on central bank policy divergence), the technicals are far from convincing.