USDJPY Bearish Price Action Setup June 26th

• The USD/JPY has printed a bearish engulfing candle after moving above last weeks high and subsequently dropping strongly to the downside – closing under 79.70 area previous resistance. Our directional bias this week was initially to the upside but the price action setup is suggesting otherwise.
• Japanese yen net long COT positioning last week was the most bullish seen since the end of Feb 2012; this indicates large specs are looking for JPY strength – supportive of USD/JPY downside.
• There is now potential for a move to test the 78.70 area in the first instance which has the 61.8% Fibonacci level aligned with the daily candle lows from 17/18/19th June.
• Further to this is the 78.60 swing low from 14th June; a move under 78.60 would weak the sequence of higher lows and bring the May 31st 77.65 area into focus, a level which represents the lowest point hit for USD/JPY since late February 2012.
• On the plus side this scenario gives a daily time frame bearish price action setup in a mid term downtrend spanning back to mid March.  On the negative side the setup is trading into multi-month lows.
• Nonetheless, there is potential for the USDJPY to resume the medium term downtrend from here.  See the daily time frame dollar/yen chart below.