The Japanese yen rallied over 100 pips from the overnight highs after Bank of Japan Governor reaffirmed that the Bank will not be increasing their QE program. The selloff with USD/JPY was strong because expectations were not unanimous for the BOJ rate decision to keep rates steady at near zero and to maintain the current easing measure.
The USD/JPY daily chart displays the recent struggle to close above the 200-day SMA. Since forming a bullish butterfly pattern on August 24th, price has steadily traded range bound between the 118.25 to 121.50 zone. Currently price action is finding support from the trendline that started back on October 15th. Deeper support may come from the 50-day SMA, which trades around the 120.00 handle.
If we see bullish momentum return and take the currency pair higher, initial resistance may come from the 121.90 level. Further resistance may come from the 122.50 zone, it is around that area that we may see a bearish butterfly pattern may form. Point D of the reversal pattern is targeted with the 127.2% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C rally. If the reversal pattern is invalidated, price may target the 124.50 resistance level.
The Trade: Buy USD/JPY at 120.00, with a stop loss at 119.00 and a take profit at 123.00. The Risk/Reward ratio is 1:3