Tell Us Yen, Where To?

Dear Traders,

not surprisingly today’s market was and still is a quiet and uninspiring event. Of course, besides Euro group meetings the entire day, the New York markets were closed due to the bank holiday in the U.S. This all resulted in subdued market movements. But could it be a moment of quietness before the storm starts? It definitely can.

On Tuesday the Bank of Japan might have its monetary policy statement, overnight call rate, and press conference. The same holds true for the CAD, which has similar announcements as the BOJ on Wednesday at 8am EST. These events can be the catalyst of the week for their respective currencies.

Of course every trader knows that the USDJPY is in the midst of a very steep uptrend rocket. Will this rocket show first signs of failure this week or will it keep pushing forward above the 90 price level? Let us take a look at the evidence.

1) Month chart – if one places a Fibonacci retracement on the last swing high swing low on the move down, the 382 retracement Fib is +/-94.30 and the 500 Fib is at +/- 100
2) Month chart – the 786 of a smaller swing high swing low is at 90.60
3) Month chart -when analyzing the huge swings on the UJ chart, we can see that this currency pair has the capability to move 2,000 pips. We started out at 77, so 97 is in that mathematical scenario a doable target.

21.01.2013 USDJPY MONTH

4) Week chart – the -1.270 target of the third wave up is at 94.50, the -1.618 at 97.40 and the -2 at 100.40

21.01.2013 USDJPY WEEK
5) Day chart -if one connects the tops and bottoms the USDJPY is in a neat channel working itself up

21.01.2013 USDJPY DAY

 

 

6) 4 hour chart – there some first warning signs that a rising wedge is being made
7) 4 hour chart -there is double divergence on the 4 hour charts
8) From the EW perspective on day chart – it looks like we are making an extended wave 5, see here more about EW.

21.01.2013 USDJPY 4 HR

Of course the ultimate judge is price action and its behavior. Impulsive moves on the charts will confirm the continuation. If we do break the top of the 4 hour channel / trend to the upside, there are two 618 targets at 91.40 price level. Here is a great article that discusses the difference between a soft and hard target.

If the UJ does make a continuation then the EURJPY could be an interesting currency pair to review. Considering the fact that the Euro is momentarily the biggest bull versus the GBP, USD, AUD, and NZD, it would seem that the EJ has the most potential of continuing the uptrend in a similar fashion.

If we compare the EJ to the UJ we notice some key differences. First of all, there is single, not double, divergence on the 4 hour chart. Second, the move down has been quite corrective of nature, which is showing characteristics of a bull flag pattern. Of course a break of that flag would confirm that pattern. So far the move down is actually a 1 hour down trend. Last but not least, price is keeping itself relatively high versus the moving averages and well above the uptrend lines. A continuation to the upside on the EJ seems likely.

21.01.2013 EURJPY 4 HR

Possible targets are:
– 123.20 which is the 2011 high
– 121.90 which is a -270 target
– 122.10 which is a -618 target

I will be monitoring price action on the 1 and 4 hour chars to see if we get an impulsive continuation and a break of the bull flag / down channel for a possible entry to the upside on the EJ.
Please let us know if there is anything you would like to see discussed in tomorrow’s blog by posting a comment down below!

Thanks and Good Trading!

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