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The US dollar has fallen back towards the 109.50 level against the Japanese yen currency as falling global stocks due to risk-off tones from Asia caused the risk-sensitive USDJPY pair to plunge.
Growing fears surrounding the COVID-19 Delta variant in China are lending credence to the idea that global growth is going to weaken this quarter. Weaker than expected retail sales data from the United States economy did not help the USDJPY pair yesterday.
The ongoing drama in Afghanistan also spooked risk trades and is helping the Japanese yen and Swiss franc currency outperform the greenback in the near-term due to its high safe-haven status.
A bearish price pattern has also been building in the background, setting up the prospect of further heavy losses for the USDJPY pair. In fact the pattern is pointing to a price plunge towards the 105.00 area.
With the ongoing increase in risk-off sentiment and the negative technical backdrop it would appear that selling any rallies in the USDJPY pair is likely to be the strategy that traders employ.
According to the ActivTrader Market Sentiment tool some 71% of traders are bullish towards the USDJPY pair, which is a worrying sentiment increase of 6 percent since last week.
This is a bearish constrain signal which is pointing to more USDJPY losses, and we should also consider the pair has plunged by nearly 150 points since the highs of last week, and traders are still in a state of disbelief.
USDJPY Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that USDJPY pair is now starting to trade under the neckline of a large head and shoulders pattern.
According to the overall size of the head and shoulders pattern the USDJPY pair could be preparing to drop by some 200 points in the short-term, taking the USDJPY back towards the 107.50.
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USDJPY Medium-Term Technical Analysis
The daily time frame is showing that the USDJPY pair appears to be building an even large bearish head and shoulders pattern, which will be confirmed by a drop towards the 105.00 level.
Should we see the USDJPY pair drop towards 107.00 level then the size of the price pattern would be nearly 500 points. This would mean that the USDJPY pair could drop towards the 102.00 level.
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