Long Term View of the USDJPY

Despite the fact that we really believe that the USDJPY will rebound from here in the very short term (from 106 to maybe 110), we found necessary to remind our readers about the long term view in this pair.

In fact nothing has really changed since our last piece on this subject. In mid July of 2007 started the most bearish sequence of technical events:

1. The re-entry inside the triangle, near 120.
2. The pair's RSI crossed its long term trend line (red-dotted line).
3. In August we saw the crossing of the long term 20 Single moving average and a very important trend line that held since the middle of 2004.
4. In August we saw also the RSI crossing the 50 level.
5. In October, we saw a test of the moving average crossing from below.
6. After a test of the greater triangle boundary, near 111-112, the pair broke it.

Why do we think that 105 is the first major target and 100 the medium term one? Because there are support areas that have proven themselves well in the past in these vicinities. 100 is also the lower boundary of the smaller triangle.

The other major reason for our belief is what you can see in the RSI part of the chart. Look how the rebounds, at the lower boundary of the triangle, occur in second rebound of the RSI and not at the first one. In 1 orange, the second rebound came while breaking the descending trend line. In 2 orange, it occurred at the test of the break of the trend line.

In our current situation, the first rebound of the RSI has not yet appeared. The descending trend line has not yet been broken up and there is no sign for a meaningful relief in the downdraft of the USD versus the YEN.

Please take care when you trade this pair because it is the mother of all the Carry-trade oriented pairs. The amount of fear that will be generated by the bear markets all over the assets span, will cause waterfall effect here and subsequent short covering rallies.

ForexManage

Disclaimer

By no means do any part of this newsletter recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this newsletter was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.