steve.jarvis's picture

The USD/JPY advance continues, but might it be near levels where it runs out of steam?

USD/JPY is starting to test some key resistance levels having steadily retraced the 2007-2011 decline from 124.14-75.32 since completing an inverted "head & shoulders" base pattern in December 2012.  The 16 year downtrend line connecting the 1998 & 2007 peaks at 147.61 & 124.14 (shown in red) was breached at 104.78 in early September, followed soon after by a push through the January 2014 high at 105.44, setting up the latest acceleration higher.  But with MACD at extended levels and no longer confirming new monthly highs, could USD/JPY be running up to a peak?

Over the short-term, the chart pattern remains constructive, with former support-turned-resistance from 2006 & 2008 starting to be tested at 109.03 / 110.65, this marks the first significant band of resistance since taking out the aforementioned 104.78-105.44 area. Above 109.03-110.65 a more significant band of resistance is seen at 111.46-112.62. This marks the 50% & 76.4% retraces of the decline from the 1998 & 2007 tops at 147.61 & 124.14 as well as the top of an alternative 16 year bear channel (shown in green, using 1999 & 2011 lows, drawn off 1998 peak).

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To be more certain of a potentially bearish 6-12 month outlook, we would need to see a failed attempt to clear the 111.46-112.62 area followed by a reversal under 102.79-103.71.  Doing so would raise the prospect of a potentially quite significant correction to the advance from 75.32 & 77.26 lows in 2011 & 2012, with a return towards resistance-turned-support from 2010 & 2013 at 94.97 & 93.89 quite possible.