Price & Time: USDJPY - Flirting With a Mid-1990’s Redux
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- USD/JPY rebounds from minor Fibonacci retracement
- End of month cycle window looks pivotal
USD/JPY found support on Monday at the 88.7% Fibonacci retracement of the August - November advance near 116.70 and has moved fairly steadily higher since. The jury is still out on whether this is just a minor reprieve or the start of stronger bounce as a lot will depend on what other so-called pro-risk markets do. Medium-term I do think the benefit of the doubt clearly needs to be given to the bears following the break of the trendline connecting the October 2014 and August 2015 lows last month, but as I have stated before the bigger picture technical level is the August low around 116.00. Traction below there would trigger a pretty clear year-long head & shoulders topping pattern and warn that a more aggressive unwind is underway - perhaps along the lines of the early 1980’s and late 1990’s.
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From a timing perspective, I see a big pivot around the end of the month as a variety of different relationships are converging then including a Martin Armstrong Pi cycle of 3,141 days from the 2007 top. If the exchange rate rallies into this time period I would counterintuitively see it as a bearish development as it would set the potential for another important down leg (from another lower high). A decline into the end of the month could set up the “flush out” low that everyone seems to be looking for and has gotten accustomed to in the QE to infinity era, but the risk there is a very aggressive move lower first. I will let the market decide what it wants to do. The August closing low around 118.40 is immediate resistance followed by a minor Fibonacci cluster around 119.50, but only over 121.00 calls into question the broader negative technical outlook.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com