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Technical Update - USDJPY deep dive and bigger picture. It could reach 142-147 in price exhaustion
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: USDJPY has broken resistance level. No strong resistance until 147. But can it move that high? Read this analysis where I dig deep into the bigger technical picture
USDJPY is breaking higher in what looks like a steep rising wedge formation. In June closed USDJPY above its strong resistance at around 135.18 but daily RS indicated we could see a correction before moving higher.
But with the move higher today that correction seems to be very small. USDJPY is likely to test the upper rising trend line in the wedge like pattern.
RSI will then most likely test its falling trendline. If closing above USDJPY will likely move higher.
If USDJPY breaks bearish out of the wedge we can expect a correction down to around 131.50 as a minimum
135.18 was the peak in January 2002, it is 1.382 Fibonacci projection of the Symmetrical Triangle ABCDE corrective pattern, and if we take the peak to bottom of the Triangle and add that difference to the break-out price (illustrated by the two vertical arrows) we get roughly 13520.
RSI (Relative Strength Index) has also reached and actually surpassed the level as it did at last peak before USDJPY started forming the corrective Triangle pattern. Going back 30 years every time, the RSI has reached values around 80 a larger correction has set in. At the time of writing, it is +85.
However, the two other times where RSI was around 80 value the correction did not occur before divergence had been recorded. There is currently no divergence on RSI during this uptrend i.e., we could see higher levels. From the Monthly chart we can see that there is no strong resistance until around 147.65. 1.618 projection of the triangle is at around 142.57.
If this is the last exhaustive leg higher – a possible vawe 5 – is has already surpassed 0.764 (at 136.05) of vawe 3. If it will be the same length as vawe 3 is should reach 147.65. Usually vawe 3 is the longest but we do see vawe 5 sometimes is equal to or longer than vawe 3.
Bottom line: USDJPY could reach 142-147 in an exhaustive move. RSI has not yet shown divergence which supports the much higher price level in USDJPY. But do expect volatility.
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