USD/JPY Continues to Test Key 102.85 Resistance

USD/JPY (daily chart as of March 24, 2014) bounced on March 19 right below the short-term uptrend line (line 1 on chart) connecting the February 4 low and March 3 low. The candlestick on March 19 was very strong with a short upper shadow attached to a long white body that was more than twice the height of its previous black body (gray shadow on chart).

The session high of March 19 was at 102.70, very close to key resistance at the 102.85 level. Its subsequent three trading sessions were all small candlesticks that were entirely engulfed within the range of the March 19 candlestick, indicating a possible continuation pattern in the making if the daily EMA 100 can hold.

Note that price has been under pressure below 102.85 and trading in a zigzag pattern against the daily EMA 100 for more than seven weeks. Technically, we require a strong breakout of a major resistance level with follow-through action to confirm. Note also that the currency pair is trading in a large range between two trend lines (line 1 and line 2).

There have been some expectations that the Bank of Japan will expand its stimulus monetary policy as soon as next month to ease the impact of tax increases. The government plans to increase the sales tax to 8% from the current 5% level.

Support levels below:
1st support: daily EMA 100
2nd support: line 1
3rd support: 100.75 (February 4 low)

Resistance levels above:
1st resistance: 102.85 (key resistance level)
2nd resistance: 103.75 (March 7 high)
3rd resistance: line 2