The Yen has fallen hard and fast. USDJPY nearly reached 105 and EURJPY 165 today. Still, when viewed in the proper context, the argument is strong that the recent Yen decline (Yen crosses’ advance) is simply a big countertrend move.
The nearly 1,000 pip rally in the USDJPY from the low (95.72) does not change our long standing position (since last summer); which is that the USDJPY is headed below 80 in a 5th wave decline from 124.13. A picture perfect 5 wave decline appears to be unfolding from the 1971 high in the USDJPY. Wave 3 of the decline was extended and divides perfectly into 5 waves itself. Wave 2 was a sharp zigzag correction and wave 4 a triangle (a-b-c-d-e); which satisfies the guideline of alternation (if wave 2 is sharp, then wave 4 should be shallow and vice versa). If this pattern is correct, then wave 5 is underway now and would not be considered complete until the USDJPY drops below 81.12. (visit Risk Trends for a more detailed USDJPY monthly chart from April 2…view the DJIA chart at the bottom of the report; the pattern that we had proposed is playing out and at a top is imminent)
In January, the EURJPY broke a 7+ year supporting trendline. The break of the trendline indicates that the bull trend is over and that lower prices are highly probable. The advance from the 2000 low is in 5 waves therefore we expect a 3 wave countertrend movement; which we contend is underway now. This supports the bearish bias going forward.
165 should cap the rally from 151.71. We are treating the decline from 167.73 as wave 1 of C (leading diagonal). Wave 2 is a sharp zigzag, which is common, and is testing resistance from the 78.6% of 167.73-151.71 and a trendline drawn off of the October 2007, November 2007, and December 2007 highs. The trendline comes in near 165. The minimum objective for wave C is below 149.25. The bearish ‘line in the sand’ is 167.73.
The GBPJPY topped last summer at 251.10 and the decline to 191.90 is in 3 waves to this point. The extended nature of the 3rd wave (240.66-191.90) makes it more likely that the drop from 151.10 will be an impulse rather than an A-B-C correction (which would meant that an important low is in place). To this point, the GBPJPY rally has reached the former congestion zone (204.61-214.02), which should provide solid resistance. Measures resistance near 210.50 is potential resistance.
