Yen Pairs Weekly Update - May 06 close

USDJPY

As expected last week, the Dollar-Yen fell in extension to the lower weekly Bollinger bands, making a lower low in regard to the previous week and reaching below the round number 80.00 and 138.2% Fibonacci extension down to the area 79.60/65, being rejected thereafter and closing on Friday nearly 60 pips above the psychological level. On the Daily charts, we can see that price was contained at the 61.8% Fibonacci retracement level, where Friday price action was almost exactly the inverted mirror of the previous day. At the present moment, price had tried to reach again Friday’s highs but was held back at the SMA34 level on the 4-hour charts, and we are trading at around the same prices barely above the round number. Price is stalling at a level that was previously respected on October 2010, forming a good support along with the 61.8% Fibonacci.

We might be bottoming on this pair, and I would favor another run towards resistance at the next round number 81.00, where we have a series of resistances ranging up to 81.60, with the daily middle line of the Bollinger bands sitting presently at 81.40.

If 80.60 (4-hour SMA34) is crossed, those would be the next targets (along with 4-hour SMA100), plus another resistance at around 82.50 (4-hour flat SMA200 and daily confluence of the three moving averages). A bearish continuation would try to match the recent lows at 79.55 but I think the correction to the upside is slowly building. We might have a consolidation taking place between 80.20 and 81.20 for a while.

EURJPY

The bearish scenario was the winner on our previous alternative projections for the Euro-Yen. Price broke 116.50 however didn’t extend all the way to the 127% level, closing above a relatively strong support area at 115.50/60. We are still far from round number 114.00 here, but slowly trying to get there after a clear 50% pullback on the 4-hour charts. Price is now trading at the round number 115.00 having made new lows, however we have a diagonal descending support zone which range is now 114.10/115.00 and its upper level seems to be holding. I would expect a retest of the broken level 116.45/50 and middle line of the 4-hour Bollinger bands before further downside, but price could reach 114.00 and below to reach the next support and daily SMA200 at 113.55/60, as we are trading under the SMA100.

The situation is not so clear, on one side we have an AB=CD pattern which calls for a bullish swing back and, on the other, the present level (115.00) has been repeatedly respected in October and November 2010, and in March 2011 as a resistance. If price ends up breaking this psychological level we are in for further downside, but I would favor instead a retracement to the 50% of the daily move, on a medium-term approach, at around 118.40/50 (the equivalent of the AB segment former retracement). Of course markets tend to be symmetrical but sometimes they don’t, so it is better to keep an eye on price behaviour at the key levels before jumping into the fire and get burned.

GBPJPY

The Pound-Yen went lower than expected last week, reaching below round number 131.00 and closing just above the SMA34. Friday candle was an upwards correction and retest of the break of the daily SMA200 and SMA100 levels (132.00/60). The pair looks bullish on weekly charts, making higher highs and higher lows.

The Geppy is exhibiting a similar pattern which only differs from that of the Euro-Yen in its completion: the potential CD segment has not yet reached the level where it would be equal to the AB swing. So we can only speculate on the possible price action that we might encounter should we fall to support level 130.20.

I would favor long positions with caution, targeting a retest of the B point (132.90/133.00) which is now a resistance, but I will wait for the CD segment to complete first.

Also, another bigger AB=CD formation could be in play, AB segment being the bearish swing from February highs to March lows, and the CD segment going from April highs to an hypothetical 138.2% extension on the also hypothetical CD segment drawn on the above chart. I guess it is better to watch closely the behaviour of this swing low in regard to the support zone (130.20/129.50) and on the upside in regard to the above-mentioned resistance (132.90/133.00) before any further speculative and imaginary scenario-building.