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Talking Points
- USD/JPY breaks widely watched trendline
- Pair closing in on key long-term support/pivot
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USD/JPY: The Start of Something?
The financial markets have started 2016 with a bang. USD/JPY is probably the most interesting chart to me in the developed market currency space because we are getting very close to the long-term support/pivot zone I highlighted a few weeks ago (read HERE). Basically, I think USD/JPY is at risk of a bigger move lower.
The 44-month rally from the 2011 low fits nicely with the advances from the 1970’s and the mid-1990’s as they took 48 and 40 months to complete respectively. The zone from where USD/JPY failed last June was also pretty compelling as it came from a clear convergence of the downward sloping trendline connecting the 1990 and 1998 highs and the internal trendline that connects the 1995 and 2005 lows. Factor in a fairly clear potential head & shoulders pattern on the weekly and monthly charts and there seems to be plenty of potential fodder for a sharp move down in the exchange rate at some point in 2016. The big question is when? I am skeptical of any big moves at the start of the year as there is usually a propensity for there to be a few false moves before a real trend emerges. The lows from August (both closing and absolute) are critical, as a clear move below them would signal that a down cycle has indeed taken hold. Near-term the trendline connecting the October 2014 and August 2015 lows near 120.75 is clear resistance with traction above needed to stabilize the more immediate negative technical situation.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX
