USD/JPY nears 107.00, eyes inverse head-and-shoulders bullish reversal

• USD/JPY tests inverse head-and-shoulders neckline resistance of 107.00.
• Upside break would confirm a bullish trend reversal.
• Risk-on action in stocks likely to yield a bullish breakout in USD/JPY.

USD/JPY is trading very close to 107.00 - inverse head-and-shoulders neckline resistance and could possibly break higher in a convincing manner if the stock markets in Europe and US remain score gains.

As of writing, the pair is trading at 106.93 - up 0.14 percent on the day and the S&P 500 futures are up 0.4 percent. An uptick in the stock markets, as suggested by the S&P 500 futures, will likely keep the anti-risk JPY under pressure and help USD/JPY scale the 107.00 mark.

A daily close above 107.00 would confirm a bullish inverse head-and-shoulders reversal and allow a stronger rally to 109.00 - 109.37 (target as per the measured height method).

However, the bullish breakout may not happen or could turn into a bull trap if the equity markets turn risk-averse (due to fear of US-China trade war).  

USD/JPY Technical Levels

A close above 107.00 would open doors for 109.37 (inverse head-and-shoulders breakout target). On the way higher, the spot may encounter resistance at 107.91 (Feb. 21 high) and 108.28 (Jan. 26 low).

On the downside, support is lined up at 106.49 (5-day MA), 106.17 (21-day MA) and 106.00 (psychological level).