USDJPY Tests 200 day SMA - Major Trend Change on the Horizon?

  • Euro 5 Waves Down Indicates Near Term Trend Change
  • Japanese Yen 200 day SMA
  • British Pound Breaks 2.0450
  • Swiss Franc Long Term Inverse Head and Shoulders
  • Canadian Dollar High In Place (USDCAD Low)
  • Australian Dollar .8786 Key to Directional Bias
  • New Zealand Dollar .7879 Key to Directional Bias

Commentary: Looking at the hourly, a drop under 1.3696 would complete a 5 wave decline from 1.3852. A retrace in larger wave 2 or b would follow and that would offer an opportunity to get short for a much bigger decline. Sometimes, a 5 down can signal the end of a correction (c wave), but in this case we believe that the 5 down signals the beginning of a larger decline because an ending diagonal ended at 1.3852, which means that the decline is from the top and most likely the beginning of the decline - not the end.

Strategy: Flat

Commentary: We wrote yesterday that “From an EW standpoint, a double zigzag may be unfolding from 124.13. The first a-b-c decline (wave W) is from 124.13-120.97. Wave X is from 120.97-122.60 and wave Y is underway now (will either be an a-b-c or i-ii-iii-iv-v). Waves W and Y would be equal at 119.45, very close to the mentioned 50% fibo at 116.64 and 1 pip away from the 5/11 low at 119.46. We are looking for a decline to this level.” The USDJPY just dropped to 119.62, very close to our objective, so be wary of chasing it lower. A bounce could test resistance at 120.74.

Strategy: Flat

Commentary: The idea that Cable is tracing out a larger 4th wave remains possible, which means that this down leg could be just the first leg of a larger correction. The line in the sand for the larger bullish picture is 2.0203. However, given the EXTREME sentiment (speculative positioning extremely long), Cable could very well continue to drop fast. The pair is coming up on potential support from a line drawn off of the 6/14 and 7/6 lows. A drop below exposes the 61.8% to 50% zone of 2.0056-2.0654 at 2.0284-2.0355. The short term structure is unclear. But, given the high correlation between EURUSD and GBPUSD and given that the EURUSD structure is bearish, a bearish stance on Cable is reasonable.
Strategy: Bullish against 2.0203, targeting 2.1000 (but monitoring closely)

Commentary: The USDCHF short term strucutre is also unclear therefore we are taking a look at the weekly. The 14 month inverse head and shoulders pattern remains in place as long as price is above 1.1877. An inverse head and shoulders is a derivation of a triple bottom. The inverse head and shoulders pattern is not confirmed until a break of the neckline but the proximity of 1.1877 skews reward to risk in favor of bulls.
Strategy: Flat

Commentary: The USDCAD may be in a small wave 3 higher from 1.0340. We have continued to focus on the potential for a significant bottom to be established in the USDCAD due to the weekly wave structure and COT report (same as GBP). The rally above 1.0495 breaks the sequence of lower highs and is the signal that we were looking for the get bullish.
Strategy: Bullish now, against 1.0340, target TBD

Commentary: We wrote yesterday that “risk of a reversal is high as evidenced also by the RSI divergence (on multiple time frames).” The AUDUSD has reversed and a drop under .8786 would indicate additional bearish potential as that would throw a potential ending diagonal formation out the window. This may be the beginning of a large wave 4 decline that declines to at least .8707.
Strategy: Flat

Commentary: The form of the decline remains corrective but a drop under .7879 (21 day SMA at .7874) would make overlapping waves and indicate that a larger correction (or diagonal) was underway. Daily RSI has dropped under 70 on the daily, which signals additional bearish potential.

Strategy: Move to flat (from bearish)
*JTREND is a proprietary calculation that uses recent highs, lows and closes to determine the trend. JTRENDLT is the longer term trend and uses the last 4 weeks of price data. JTRENDST is the shorter term trend and uses the last 5 days of price data. An example is below. Blue bars denote bullish trend and red bars denote bearish trend. The chart below is the EURUSD weekly chart.