USD/JPY Weekly Outlook

USD/JPY dived further to as low as 104.98 last week but rebounded strongly on broad based dollar recovery, reaching as high as 106.93 so far. Initial bias is still mildly on the upside this week as corrective rise from 104.98 could still extend further. However, upside is expected to be limited by 107.19/20 cluster resistance (61.8% retracement of 108.58 to 104.98 at 107.20 and 100% projection of 104.98 to 106.39 from 107.78 at 107.19) and bring fall resumption. Below 105.78 minor support will suggest recovery from 104.98 has completed and flip intraday back to the downside for this low. Break will bring deeper fall to 104.43 support first.

In the bigger picture, USD/JPY has made a medium term bottom after down trend from 124.13 has just met 76.4% retracement of 79.75 to 147.68 at 95.78. Failure of 108.59 resistance was taken as the first signal that rebound from 95.77 has completed. Further break of 102.73 support will confirm this case.At this moment, it's premature to conclude whether rise from 95.77 represent whole correction pattern to fall from 124.13 or just part of it. But in either case, deeper fall should be seen to 61.8% retracement of 95.77 to 108.59 at 100.66. On the upside, while strong rebound could be seen, short term risks will remain on the downside as long as long 108.59 key medium term resistance holds.

In the longer term picture, USD/JPY has broken out of multi-year triangle consolidation pattern that started in 1998 at 147.68. While the current rebound from 95.77 might be strong, there is still no clear evidence to support changing the long term bearish outlook yet. Attention will be paid to the structure of the rise from 95.77 to determine whether it's just a correction to fall from 124.13 or a start of another medium term rally.

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