USD/JPY Testing Rectangle Range Upper Border

USD/JPY (daily chart as of August 28, 2014) broke out above the important 102.70/85 resistance on August 19, and reached a fresh high of 104.25 on August 24. Note this is the pair’s third attempt (three gray shapes on chart) to breakout the 102.70/85 level since March 2014.

Note also that the pair has formed five clusters below 102.70/85 (red shapes on chart). Price is now trading in a large rectangle range between 100.80 and 104.10, with a dividing zone of 102.70/85. Watch closely the price action against this dividing zone.

If price can hold 102.70/85, it may test 104.10 again and then potentially 105.40. If price breaks down below 102.70/85, it could decline further to test the 200-day EMA, which has been serving as long-term support since June 2013. It appears that the 200-day EMA is now turning up from flat.

The dollar strengthens amid speculation that Fed will raise interest rates in 2015. Fed Chair Yellen said at the conference in Jackson Hole that job market growth may lead to a sooner-than-expected rate hike. Bank of Japan Governor Kuroda mentioned the central bank may need more stimulus to control inflation. The Statistics Bureau of Japan will release the National CPI and unemployment rate later today.

Support levels below:
1st support: 102.70/85 (key support level)
2nd support: 200-day EMA (long-term support)
3rd support: 100.80 (lower border of the rectangle range)

Resistance levels above:
1st resistance: 104.10 (upper border of the rectangle range)
2nd resistance: 104.80 (January 22 high)
3rd resistance: 105.40 (January 2 high)