USD/JPY Weekly Outlook

USD/JPY had an extremely volatile week, first dived to as low as 103.76 and then rebounded strongly to as high as 107.09. The development so far indicates that fall from 108.58 has completed at 103.76 already and more importantly, leaving it with a three wave corrective structure. While a break of 107.75 resistance is still needed to confirm this case, the equivalent break of 212.43 resistance in GBP/JPY is taken as an early confirmation. Hence, further rally should be seen initially this week and break of 107.75 will bring retest of 108.58/59 resistance On the downside, below 105.43 will turn intraday outlook neutral first. But break of 103.76 is now needed to turn short term outlook bearish again. Otherwise, another rise is still in favor even after pull back.

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. Corrective nature of the fall from 108.58 to 103.76 argues that medium term rebound from 95.77 is still in progress. Firm break of 108.59 key medium term resistance will confirm such rally has resumed for 61.8% projection of 95.77 to 108.58 from 103.76 at 111.68 first. On the downside, while another fall could still be seen if consolidation from 108.58 extends further, rally from 95.77 should still be in force and expected to extend high as long as 102.73 support 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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