Why I think USD/JPY will retest the recent lows

Today I want to take a look at USD/JPY. The Japanese Yen has done some very interesting things against all of the major currencies lately, causing all kinds of volatility. Just look at the daily chart of EUR/JPY below and you'll see what I mean. Every time the market seems like it's all settled in to an uptrend something dramatic happens to knock everyone for a loop.

That has not been the case for USD/JPY, though. As the chart below shows, the volatility over the last several weeks has been nowhere near as prominent as in the crosses like EUR/JPY. That is an obvious function of a general negative sentiment toward the Dollar, which isn't something that's going away anytime soon.

Last week saw USD/JPY bottom out and rebound strongly, a move which continued to start this week. Observe something very interesting, though. Notice how on the day the market bottomed, it dipped down to a new low, but then reversed quite sharply. Now look at Monday's action - the second to last candle. See a similarity? Yesterday the market surged to a new high, then failed and ended lower.

My take on this is that just like that reversal last week announced a few days of upward action, yesterday's failure heralds what is likely to be a retest of the recent bottom. It's a bit too early to know whether we're looking at the early days of the next leg down in USD/JPY. It could just be a consolidation marking the end of this decline. Either way, there's a decent selling opportunity setting up here, one with a nice reward to risk profile.

John Forman is the author of Amazon Top Seller The Essentials of Trading and a near 20-year veteran of trading and investing across a wide array of markets and instruments. He is publisher of the Anduril Trading Report, which documents the analysis and trading he does for the Anduril Trading Portfolio. John also oversaw the compilation of the Opportunities in Forex Calendar Trading Patterns research report. For a free sample of that research as it pertains to the month of June, click here.