Yen Crosses: Beware of Ending Diagonals


[B]Commentary[/B] - The psychological backdrop that we discussed last week remains conducive to a top. The decline from 118.20 to 114.53 occurred in a clear 5 waves, thus there is additional bearish potential. However, the rally since has also exhibited impulsive characteristics. This indicates that an ending diagonal could be forming. If one is forming, then we should see a rally through 118.20. At this point, we are comfortable being flat as the pattern does not offer a high reward to risk opportunity.
[B]Strategy[/B] - Move to flat

[B]Commentary[/B] - We wrote last week that “although the risk of a pullback (or outright reversal) is high in the JPY crosses (due to speculative positioning as indicated by the COT report), the CHFJPY is breaking to the upside. The pair is in a 5th wave that began in March (the entire 5th wave advance began in June 2005). A measured objective for the end of the rally is the 61.8% extension of waves 1 through 3, which is at 102.66. Wave 5 would equal wave 1 at 102.62, so this is a level to watch closely.” These levels remain objectives.
[B]Strategy[/B] - Flat

[B]Commentary[/B] - After a false break lower last week, the NZDJPY has recovered and is nearing the 7/6 high of 96.94. A potential resisting line is at 98.00 today (increases about 12 pips per day). Similar to the other Yen crosses, the rally from 90.47 may be an ending diagonal. These patterns usually result in a sharp reversal. Still, a new high is expected (above 96.94).
[B]Strategy[/B] - Flat