After being stuck inside a range for quite some time, USDJPY finally picked a direction and broke to the downside.

This suggests that further losses might be in the cards for this pair.

The range is approximately 100 pips in height so the resulting breakdown could be of the same size, possibly taking the pair down to the 121.50 mark or much lower. Stochastic and RSI already nearing the oversold area so profit-taking might take place soon.

However, the 100 SMA looks prime for a downward crossover, possibly signaling that a downtrend is brewing. A bounce off the nearby support areas could simply spur a retest of the broken support before more bears push the pair back down again.

Event risks for this trade include the release of US retail sales data on Friday, with weak readings likely to spur more losses for the currency. Risk aversion has been in play these days, although the lower-yielding Japanese yen has outpaced the safe-haven US dollar lately.

As for Japan, only medium-tier reports such as PPI and BSI manufacturing index data are lined up. Earlier in the week, the GDP reading enjoyed an upward revision from -0.2% to +0.3% to indicate that the economy didn’t really suffer a recession.

In addition, manufacturing data yielded stronger results, with core machinery orders surging by 10.7% instead of falling by 1.5% as expected. 

By Kate Curtis from Trader’s Way