USD/JPY – 76.70

USD/JPY – Wave (1) of 3 ended at 84.82 and wave (2) possibly ended at 94.99

Although the greenback fell to as low as 76.03 last week, the subsequent rebound in part due to dollar’s broad-based strength on solid U.S. data has retained our view that further consolidation above record low of 75.31 would take place and mild upside bias remains for another bounce to 77.15-20 (50% Fibonacci retracement of 78.29-76.03), then to 77.43 (61.8% Fibonacci retracement). Having said that, above resistance at 78.29 (this would also penetrate 61.8% Fibonacci retracement of 79.55-76.03) is needed to retain bullishness and signal the retreat from 79.55 has ended at 76.03, then a stronger rebound to 78.70/75 would follow but only break of minor resistance at 79.10 would retain bullishness. Looking ahead, a rise above resistance at 79.55 would bring correction of recent downtrend to previous resistance at 80.25 (previous post intervention high), break there would confirm this view and bring a stronger rebound to next resistance at 81.49 and then 81.63 (61.8% Fibonacci retracement of 85.53-75.31) but price should falter below resistance at 82.23.

Our preferred count is that, wave 1 ended at 87.10 followed by a 3-legged wave 2 at 101.45 and the wave 3 is unfolding with wave (1) of 3 sub-divided into i: 91.73, ii: 97.79, iii: 88.01, then wave iv at 92.33, therefore, the wave v of (1) has ended at 84.82 and wave (2) is labeled as A leg: 93.78), B leg of wave (2) ended at 88.14 and C leg has ended at 94.99.

Under this count, wave (3) of 3 is under way with i ended at 88.15, followed by wave ii at 93.65 and wave iii has formed a low at 80.21. The wave iv is a triangle which ended at 83.30 and wave v has either formed a low at 75.31 or may extend one more fall but downside should be limited to 73.90/00, bring major correction in late Q4, a sustained breach of 80.25 resistance would signal a temporary low is formed as end of wave v.

On the downside, expect pullback to be limited and said support at 76.03 should hold, bring another rebound later. A daily close below said support at 76.03 would risk weakness to 75.55-60 but still reckon record low at 75.31 would hold, bring another rebound. In the unlikely event, dollar drops below said record low, this would signal major downtrend has resumed and extend weakness to psychological support at 75.00 and possibly towards 74.50 but sharp fall below there should not be repeated and bring another rebound later this month or in later part of Q1 of 2012.

Recommendation: Hold long entered at 76.70 for 78.00 with stop below 75.70

On the monthly chart, we have changed our preferred count that an impulsive wave is unfolding with major wave III with circle ended at 79.75, then followed by wave IV with circle and is labeled as a triangle with A: 147.64 (11 August, 1998), B: 101.25, C: 135.20, D: 101.67 and E leg ended at 124.14 to end the wave IV with circle. Hence, wave V with circle is taking place with wave 1 ended at 87.10 earlier this year in January and wave 2 ended at 101.45 and as suggested previously that wave 3 is unfolding and already reached our indicated initial downside target at 79.75 to a fresh record low at 75.94. The quick rebound from there suggest a minor wave iii has possibly ended and correction back to 85.94 would be seen.