Dollar/Yen in Position to Post Weekly Reversal Bottom

The USD JPY is trading higher at themid-session, putting it in a position to close higher for the week. A closeabove last week’s low at 85.48 will produce a weekly closing price reversal.This formation, once confirmed by a follow-through rally next week, often leadsto the start of a 2 to 3 week retracement to a major 50% level, currentlyidentified as 89.55.

The USD JPY is trading higher at themid-session, putting it in a position to close higher for the week. A closeabove last week’s low at 85.48 will produce a weekly closing price reversal.This formation, once confirmed by a follow-through rally next week, often leadsto the start of a 2 to 3 week retracement to a major 50% level, currentlyidentified as 89.55.

Today’s rally in the Dollar/Yen has helpedform a new main bottom on the daily chart at 84.73. Based on the short-termrange of 88.11 to 84.73, traders should watch for a possible test of aretracement zone at 86.42 to 86.82. Based on today’s upside momentum, this areais likely to be tested by the close.

The current two-day rally in the USD JPYhas most likely been a reaction to the “verbal intervention” by the Japanesegovernment earlier this week. Some traders feel the government will interveneat this time, but doubts still linger about its effectiveness.

According to the Bank of Japan minutes fromthe July 14-15 meeting published overnight, the BoJ is closely monitoring theeffect of a strong Yen and falling stock prices on the economy. If one interprets this to mean that the BoJis seriously considering an intervention at this time, then this news will actas the catalyst to drive the Dollar/Yen sharply higher.

Throughout the entire financial crisis theDollar and the Yen have both benefitted from investors’ unwillingness to holdon to risky assets. Most of the rally in the Yen has been traders seekingshelter in safe-haven assets. The possibility of a rally in the Dollar/Yenexists at this time because speculators feel the Japanese government willintervene in order to protect the interest of its exporters. One key to thisrally taking place will be whether a stock market break will trigger aflight-to-safety rally, thereby limiting gains in the Yen following anintervention. In other words, if equities break hard, will the news of anintervention be enough to counter-act the demand for the lower risk JapaneseYen. If not, then the Yen seems destined to move higher.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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