USD/JPY Weekly Outlook

Some volatility was seen in USD/JPY as it dived to 94.87, rebounded to 96.56 and then weakened back to 95.18 again to close the week lower. While downside momentum is clearly diminishing with bullish convergence condition in 4 hours MACD, there is no confirmation of bottoming yet. Initial bias is mildly on the downside this week and further decline could be seen to 93.84/94.44 support zone. However, as we're treating the fall from 98.87 as the fifth leg of triangle consolidation that started at 99.67, downside of the current fall is expected to be contained by 93.84/94.44 support zone and bring strong rebound to resume the larger medium term rise. On the upside, above 95.56 minor resistance will turn intraday outlook neutral first. Break of 96.56 resistance will suggest that fall from 98.87 has finally completed and should target this resistance next.

In the bigger picture, price actions from 99.67 are treated as consolidation in the larger up trend from 87.12 only, in form of triangle pattern. Fall from 98.87 is viewed as the final leg of such consolidation and should be contained above 93.84 support to conclude the consolidation. Break of 98.87 will be an important signal that whole rally from 87.12 is resuming and break of 101.43 will path the way to next key level at 110.65. However, note that a break below 93.58/84 support zone will invalidate the bullish case. Instead, it will revive the bearish case that USD/JPY has completed a head and shoulder top (ls: 99.67, h: 101.43, rs: 98.87) and will in turn indicate that whole down trend from 124.43 is still in progress.

In the long term picture, as rise from 87.12 is now expected to resume sooner or later, key cluster resistance level 61.8% retracement of 110.65 to 87.12 at 101.66 and 38.2% retracement of 124.13 to 87.12 at 101.25 will likely be taken out. More importantly, 55 weeks EMA (now at 99.21) and long term falling trend line resistance (now at 100.52) will likely be taken out too. In other words, whole long term down trend form 124.13 has likely completed at 87.12 already. So focus will now be on 101.43 resistance and sustained break will affirm the bullish case and extend the rally to 101.65 at least. Meanwhile a break of 93.53/84 support zone is now needed to revive the bearish case that fall from 124.13 is still in progress.

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