Often on a flag pattern you can target a measured move from the last leg down (126.50-121.70). That's roughly 500 pips from the breakout point. But it does not always play out like that, so the area I'm keeping an eye on if it gains some downside momentum is 120.80. That is the 161.8% Fib extension of the flag itself.
Just a quick update - I've been tracking the move down in a channel. It looks like the NFP was a catalyst for a downside break of the down channel, which is always a good sign of accelerating momentum. We did get a pull back and rejection from the bottom of the channel as indicated in the chart. Will continue to monitor for signs that momentum is slowing down, but for now the trade looks good.
Hi Pipstrading, It's hard to determine the exact path this flag will play out, or if it will even play out, but here is my view. The move you described to 121.5, I see that as taking out some stops below the major low 121.68 on the chart below. After a stop run, we usually see a bit of a pull back, in this case selling pressure completely subsided. The correlations with the Equity markets are strong on downside moves in the Yen pairs, and the S&P500 actually broke the pre-NFP highs. So the JPY pairs will have a tough time seeing the downside while equity markets are bullish. Having said that, the equity markets are in a bit of a bear cycle right now, and no reason to believe it's turned back to bullish yet. The EURUSD has a major weekly hammer candle printed, so I do expect further pressure on the EURJPY due to the correlations. I have updated the channel to include the spike high. The area I'm watching, is 122.54 - that's where we retested the channel. If we get there I will look to close half my position ahead of the bearish invalidation. The pattern I've seen so far is that the European markets are selling the equities while the American markets are propping them up, for that reason I expect the bulk of this move to occur during the European session.