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Talking Points

  • USD/JPY rebound picking up steam
  • Latter half of next week critical from a timing perspective

USD/JPY: Just a Bounce or a Bona Fide Pain Trade?

USD/JPY: Just a Bounce or a Bona Fide Pain Trade?

Next week is looking very interesting for global markets as the S&P 500, Crude, Nikkei, Yen and a few others will be facing some key timing hurdles. My focus will be primarily on Japan given the convergence of timing relationships around the Bank of Japan decision, but I suspect we will learn a lot about the true state of the markets by the way they react these next few days. In other words, whether this recovery is the real deal or not.

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USD/JPY is perhaps the most interesting instrument to watch given that in addition to some important Fibonacci timing relationships next week it will also be 3,141 calendar days from the key cyclical high recorded in June of 2007. The Martin Armstrong Pi cycle is one of my favorite timing techniques and when it coincides with other unrelated timing methodologies, it is usually worth paying a little extra attention. As for direction, a lot depends on what USD/JPY is doing into the latter part of next week. A continuation of this current rally would open the door to some sort of secondary high especially if we get near square root relationships around 119.20 and 120.25. A turn down before then to re-test or even break support around 116.00 would have me looking for a more formidable low. A failure to respond to the timing relationship is another possibility (like the pound last week), but we will cross that bridge if we get there. I slightly favor my first scenario as futures positioning shows the market has its biggest yen long position on in over three years. Momentum usually loves the pain trade.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX