USDJPY turns around
USDJPY closed higher last week after a two-week sell off pushed it to as low as 113.45,the lowest price since Junâ€™07â€™06.
Following its bottoming in May at 108.97, this pair embarked on a rally off this low with a correction in form of consolidation in late May before hitting a new two-month high at 116.69 in Juneâ€™06.USDJPY did not only blast through its Janâ€™06 low on its way to the upside but took out other layers of resistance (50/100/200
EMA/.50 Ret/.618 Ret) and then hit a very strong resistance zone denoted by the blue and the magenta horizontal lines. In addition, this zone coincided with Feb/Marchâ€™06 lows and the gap down zone making it a very hard nut to crack for this pair.
What then happened at this key resistance zone?
A consolidation and a failed attempt to the upside followed leading to a sell off to 114.39/08 level. A three-day rally ensued but failed creating another sell-off towards 113.40(Janâ€™06 low), a very important level both on the daily and weekly charts as can be seen from the charts below. With the confluence of a horizontal support trendline, .50 Ret and 113.00/40 (as strong support levels), USDJPY survived the sell off and turned upwards rallying to as high as 116.37 a few pips from the blue falling trendline drawn off Dec.â€™05 high(121.40).
Figure 1: Daily Chart
Figure 2: Weekly Chart
Another thing that is noticeable in this pair is the overbought condition that has fired up which it needs to unwind to build more energy before launching a fresh attack on the falling trendline and probably push higher towards 118.86/119.00 levels which are the main obstacles to its upside incursions. Any pullback/correction based on the above view should be initially contained by 115.93/95(Gap down bottom/.707 Ret) and 115.05/114.84 (.618 Ret/200
EMA) should fence off any deeper retracement.
On the whole, this new development has put this pair in a position to push for higher gains.