Yesterday, the Japanese yen rallied after the release of stronger domestic GDP for Q3 along positive revisions coming from business investment. With the Q3 GDP revision to +0.3% from -0.2%, Japan did not technically fall into recession. This validates the Bank of Japan’s actions and may keep them from increasing their quantitative easing efforts.
The USD/JPY daily chart shows the struggle to break above the 124.00 level despite the strong expectation that the Federal Reserve will raise rates next week. Price formed a bearish butterfly pattern at beginning of summer with the 125.84 high, but then formed a bullish butterfly pattern on August 24th. The bullish reversal pattern ended once price formed a bearish Gartley pattern on November 18th. Point D is targeted with the 78.6% Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C leg.
If we continue to see weakness here, price could continue to fall towards the 200-day SMA, which currently trades at the 121.57 level. Deeper support could come from the 120.00 level.
If bullish momentum returns and breaks above the 124.00 handle, key resistance will come from the 2015 high of 125.84.
The trade: Sell USD/JPY 123.50, with a stop loss at 124.50 and take profit at 121.50. The risk/reward ratio is 1:3