Patterns in the Yen crosses suggest that upward corrections are to begin soon. In some cases, these rallies could be sizeable, especially in the CADJPY.
We presented 2 counts last week, both bearish, and wrote that “both counts suggest positioning for a decline against 163.09. A short term rally is likely but look for resistance in the 161.50/90 zone.” The decline into 156.26 probably completes 5 waves down from near 170 (it is also possible to count wave 4 as a triangle…we would end up with the same count). A corrective advance should reach the 159.90-162.75 zone over the next several weeks. The larger trend is viewed as down and the minimum objective is below 149.25.
We wrote last week that “there is the possibility of weakness extending from current levels. In such a case (extension), price would remain below 204.57 and continue on lower in a 3rd wave. A push through 204.57 would indicate to us that a larger correction, perhaps back to 207.25 or higher, is underway.” Price remained below 204.57 and the pair has already reached the minimum target of breaking the March low (192.60). Additional weakness is likely but not before a small correction. An eventual target is 185. Resistance is at 195.50.
The pattern in the CADJPY remains unclear to say the least. A reverse head and shoulders remains possible, which is bullish. Bearish evidence includes the 200 day SMA, which is sloping down and the series of lower highs since late 2007. Volatility is low. This is the kind of environment that precedes a breakout. Given the potential for upward corrections in the other Yen crosses and a reversal today in the USDCAD (CAD strength), it is possible that the break will occur to the upside. Today’s outside candle is additional bullish evidence.
Until price breaks below the March low of 88.14, a continuation of the range that has persisted since July 2007 is possible. The consolidation is a forming a triangle, which could be either bullish or bearish. Based on the bigger picture, we are favoring the bearish interpretation. A pullback in wave e should finish a B wave that began at the August 2007 low.
We maintain a bearish bias as long as price is below 78.97. A B wave triangle is complete at 82.73 and the C wave acceleration lower should be underway (again…78.97 is the line in the sand for bears). A potential objective is the June 2004 low near 67.50. The 61.8% extension of A is at 68.21. Given that at least corrections look likely in the other Yen pairs, be aware of a false break here. Even a correction could reach 75.50 (former congestion) or 76.75 (61.8%).
Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published 6-7 pm EST), Daily Technicals every weekday morning (9-10 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week. He is also the author of Sentiment in the Forex Market.
Contact him at [email protected]
