USD/JPY, Just A Correction ? by D Solin, Foreign Exchange Analytics

In the bigger picture, the view $/yen remains unchanged as trade from the March 17th low at 96.15 is seen as a correction (wave 4 in the fall from the Dec high at 114.65) and suggests an eventual resumption of the declines below 96.15 after (within wave 5). However, the short term upside pattern does not yet appear “complete” leaves open scope for at least another few days of ranging and even further new highs first (see “ideal” scenario in red on daily chart below). Note too that longer term resistance lies just above the earlier 101.90/00 high at 103.20 (38% retracement from the Dec high at 114.65) and 103.65/80 (bear trendline from Dec, ceiling of multi-week bullish channel, and a 62% retracement of wave 3), and suggests that any further gains as part of this larger topping may be limited.

In the bigger picture, the view $/yen remains unchanged as trade from the March 17th low at 96.15 is seen as a correction (wave 4 in the fall from the Dec high at 114.65) and suggests an eventual resumption of the declines below 96.15 after (within wave 5). However, the short term upside pattern does not yet appear “complete” leaves open scope for at least another few days of ranging and even further new highs first (see “ideal” scenario in red on daily chart below). Note too that longer term resistance lies just above the earlier 101.90/00 high at 103.20 (38% retracement from the Dec high at 114.65) and 103.65/80 (bear trendline from Dec, ceiling of multi-week bullish channel, and a 62% retracement of wave 3), and suggests that any further gains as part of this larger topping may be limited. For now, would stay patient for a higher confidence entry likely over the next few days/week (expected to be on the short side and possibly at higher levels). Nearby support is seen at 101.95/05 and 101.35/45. Note only temp resistance and 1 yen decline on the March 27th short at 99.60 before stopping above the bear trendline from late Feb (then at 99.50, closed at 99.65) a few days later.

Longer term, the bearish bias remains in place with further declines toward the base of the 6 year bearish channel (currently at 94.75) and eventually a retest of the Apr 1995 low at 79.80 still in place. Note too that the downside pattern is still quite far from “complete” (currently within wave 4 in the fall from the Dec high at 114.65, and also wave III in the fall from the Oct 2007 high at 117.90, see numbering on weekly chart/2nd chart below). For now, would maintain the longer term bearish bias but note that there will no doubt be significant, countertrend bounces (minimum 7-8 yen) along the way as this longer term downside pattern continues to unfold over the next number of months.

David Solin
Partner, Foreign Exchange Analytics

 

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Foreign Exchange Analytics has it's roots in both the emerging information technologies and the global economy that characterized the last two decades.  As currency transaction volumes soared in the wake of the 1985 Plaza accord, the need for timely concise information on what forces were driving and would drive exchange rates became critical.   David Gilmore was one of a new breed of analyst that saw a void of relevant, market moving... More