We have focused on the idea recently that “the entire rally from 104.97 to 108.59 could have completed a larger correction” but have also mentioned that “we have subjectively favored a larger rally because of various sentiment measures.” The drop below 105 proves us wrong and we will look to align with bears. What were suspicions are now confirmed.
That is, wave iii of 3 of larger 3 (within the decline from 124.13) is underway. There are Fibonacci extensions (161.8) at 97.64 and 98.06. The drop below 104.97 probably signals the beginning of the drop that will challenge the 1995 low near 81. There is plenty of room for the USDJPY to fall over the next few weeks and months. In fact, the pair is entering the most bearish part of its pattern since 124.13. As such, we are on the lookout for shorts.