picking tops and bottoms

-Double bottom at 87.09
-Long term trend still down
-Short term pattern a triangle or flat

US Dollar / Japanese Yen

USD/JPY Price action in the major is starting to look constructive after the latest round of setbacks off of the early January 2009 highs stalled out perfectly by 87.15, to match the previous trend lows from December. With weekly stochastics just having crossed up from oversold, there is plenty of room for gains to run over the coming weeks. The market had been trading below the daily Ichimoku cloud since mid-September but the current push higher is threatening this trend. The top of the cloud currently resides at 93.85 and a move back above will undoubtedly attract fresh bids. Another potential bullish formation that could be taking hold on the weekly chart is a textbook double bottom with neckline resistance by 94.60. A break back above the neckline at 94.60 would be significant as this pattern trigger would project additional upside back above 100.00 and towards the 104.00 area (measured move objective).

Strategy: BUY@ 92.50 FOR A 100.00 OBJECTIVE, STOP @89.50. BOOK PROFIT ON 1/3 POSITION AT 94.60 AND TRAIL STOPS TO COST.

US Dollar / Japanese Yen

I still favor a drop below the 1995 low at 79.75, probably within the next 12 months.  Let’s review why:  A drop below 79.75 would complete 5 waves down from the early 1970s.  The 4th wave of the cycle unfolded as a triangle, which took 12 years.  Triangles are followed by terminal thrusts in the direction of the larger trend, which in this case is down.  The long term bearish bias is valid against 110.71, but price should not come near there.  On the next chart, I’ll examine where we to expect resistance over the next few weeks.

US Dollar / Japanese Yen

As I have written in the Daily Technicals recently, “it is likely that either a triangle or a flat is unfolding from the December low at 87.09.  I say this because both the advance from 87.09 and decline from 94.67 are in 3 waves.  The subwaves of triangles and flats are 3 wave affairs.  Near term structure is bullish as long as price is above 89.68, which keeps the series of higher lows intact.”  A flat would end above the January 6 high of 94.67 and expose resistance from the 38.2% of the decline from 110.71, which is at 110.71.  A triangle would lead to a tightening range.  COT data favors JPY weakness (USDJPY strength) so I view a flat as more probable than a triangle at this point.  The bias is bullish as long as price is above 89.68.

Written by Jamie Saettele, Senior Currency Strategist for DailyFX.com
To contact the author of this report, e-mail jsaettele@dailyfx.com

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