The US Dollar may be firming against the Japanese Yen. As illustrated, the 3-day time-frame chart for the USD/JPY is testing a key support level, which is the 38.2% (@ $106.64) Fibonacci retracement of its move from $75.563 (Oct-2011) to $125.849 (June-2015). The currency pair also appears to have successfully tested support @ $105.25.
A 38% retracement is a healthy correction in a bull market and any extended move south of this typically is indicative of more underlying bearish fundamentals. Existing economic conditions and the future outlook for Japan are not nearly as strong as the US, so the probability of further price decline should be carefully measured, if at all.
On Wednesday, Prime Minister Shinzo Abe forewarned of Japan doing a currency intervention to weaken the Yen if necessary. Some traders may doubt the seriousness of his intentions, but a breakout above the existing bearish channel would signal a new short-term uptrend and cause some traders in what is an already “overcrowded trade” to bail for the nearest exit. (See chart below)