Long Term Analysis for USDJPY

Look for a new high by April followed by a decline into the end of August

The Dollar has performed strongly against the Yen for some while now and some suggest there appears to be no end for the rally. However, there is an end in sight and not too far away but the reaction lower does look like it will be a correction rather than a larger reversal in the Yen's fortunes.

The monthly chart is shown above shows that the shortest cycle is now close to a low and we can expect a reaction of some kind very shortly. The approximate timing for the low is in August. Note that the blue and red cycles are still rising and once the correction is complete around the August time frame we should expect to see the Dollar rally quite strongly again, probably to force its way to new highs.

In the monthly chart note that Rapid RSI registered an overbought reading at the 121.38 high and following the correction to 108.96 the subsequent rally to new highs has not been matched by Rapid RSI and this warns of a potential bearish divergence.

The wave count I have considered the low at 79.70 in 1995 to have ended a 5 wave decline with the subsequent rally to 147.63 being Wave A. Following this there appears to have been a triangle develop and this may have come to an end at 108.96 though it is rather to early to confirm this. Measurements will be provided in the weekly analysis. If this is correct then this was also the end of Wave B and thus we can expect a 5 wave move to develop.

The weekly chart shows the triangle pattern a little more clearly. The question of whether the 108.96 low provided the end of Wave e and therefore Wave B can be outlined here.

Normally I'd look for a Fibonacci relationship here and this would be approximately 61.8%-66.67% of the rally in Wave ^b added to the Wave ^c low. This would imply a target range of 122.63-124.30. What we cannot be certain of is whether the 121.38 high actually provided this peak or whether we are seeing this develop now. However, we have a target most certainly at 124.30 in this rally.

Note that the shorter weekly cycle is now pointing lower and this also has an approximate low around the end of August. Rapid RSI also looks as if it could well develop a bearish divergence on the current rally to highlight the strong risk of reversal.

Let's turn to the daily chart to try and fine tune the current move.

If the 108.96 low was the end of Wave B then we'll be expecting a 5 wave move higher in Wave C. We would normally expect a rally in Wave (i) to the area of a previous Wave b or major peak. However, in this case there doesn't appear to be a good guideline. However, taking a wave equality target of the initial rally from 108.96 to 119.87 we note a target of 125.33.

Within the Wave (c) rally we saw Wave iii end at 122.21 and Wave iv at the 58.6% retracement at 118.97. From this we can generate potential targets for Wave v:

Wave v = 61.8% projection at 123.78
Wave v = 66.7% projection at 124.16
Wave v = 76.4% projection at 124.92

This final projection is just 41 points from the wave equality target in Wave (c) and thus this appears to be the likely outcome.

Daily cycles are currently bullish but should last for too much more time and should find a high in the 2-4 week time range. Thus while price manages to remain above the 120.50-80 area (approximately) we should see the rally to the targeted 124.92-125.33 area and from there see a pullback into the end of August. Watch for Rapid RSI to develop a bearish divergence and look for a break of key supports to signal the reversal.

Ian Copsey
Global Forex Trading
http://www.gftforex.com

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