USD/JPY Weekly Picture up to 04-22-2008

There is no real respite from the current financial crisis without some return of the risk appetite that was before its beginning. And, the most indicative sign for such a development would be some return of the Carry-trade mechanism that was so in vogue in the previous years.

Following this logic, we would like to look at the USDJPY pair for a possible renewal of such a risk appetite, at least in the Asian theater. To do that, we show a composition of two charts for the Japanese currency: a weekly one and a daily insert:

For the USDJPY weekly chart:

1. The brief waterfall drop under 100 was immediately followed by a reversal that is continuing until now. The obvious obstacles (first descending trend line in blue, Fibonacci retracement level 23.6% and the 10 weeks moving average in green) were overcome after brief reactions (ellipse in violet).
   
   
2. On the indicator front, we got last week the first positive reading from the MACD diff and a steady move of the RSI towards the important 50 level. These signs are bullish and merge with the general feeling of a more substantive rebound.
   
   
3. The pair has also reacted to the upper price channel boundary on its way to cross the other blue descending trend line, which were the internal guidelines for the whole descent from 125.
   
   
4. On the chart, you can see the important resistance levels (violet rectangle) and the upper descending channel boundary that would give some problems to the pair's journey towards higher levels.
   
   
5. Finally, it is always a good thing to remember that a trend is defined by a series of higher highs and higher lows. This is what we see now.

For the USDJPY daily chart:

After establishing the fact that the USDJPY is in a medium term up trend, we should take in consideration that the 105 was already achieved (first important resistance) and it also coincide with the 61.8% Fibonacci retracement level for the last great drop.

Therefore, we should expect a small move down, towards the ascending channel lower boundary (also the 50%), before an assault to the previous high, near 108.5, should be accomplished.

Conclusion:

The pair seems to be reversing up for the medium term and by doing so, giving the signal for a renewed appetite for risk funds under the Carry-trade mechanism. 108.5 is the immediate target for this move, and maybe higher, but a small move down should arrive before hand.

Disclaimer

By no means do any part of this article recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this article. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this article was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.
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About the Author

Moshe Shalom Head of Technical Analysis Department ForexManage Ltd Site: www.forexmanage.com Email: This email address is being protected from spam bots, you need Javascript enabled to view it