We asked the question. We got our answer. The USD/JPY crumbles.
On April 6, I posted an update about when the USD/JPY could rollover. The issue was: When would the yen outpace the greenback? The answer came as the greenback lost ground right around 80.30 and sank back lower through 80.00. Although the greenback has not accelerated much lower from the major psychological level, it offered the yen the small window it needed to drive the USD/JPY lower.
But that’s not the entire story. For about two weeks now the question is when will the U.S. equities market break lower and the Dow seemed well on its way after Friday’s NFP miss. The S&P seemed to be the only glimmer of optimism and it was sitting precariously on 1,370 support. That support broke today and allowed the yen to strengthen even more.
Remember it has been gaining on the aussie and euro and the dollar seemed to be all that was left. It’s no surprise that the day the S&P is broken is the day that the USD/JPY confirmed it “rollover” trend reversal entry.
Past performance is not indicative of future results
The Wave Reversal entry was triggered aggressively as the 34 period EMA low was broken and conservatively as the 50 period SMA close was broken. Accompanying each break was a -100 reading on the Commodity Channel Index (CCI).
The follow-through now will be dependent upon further weakness in the equities market coupled with an increasing concern for QE. There will be a pocket of time where the dollar will remain in a range as QE would weaken it (so it won't rally on fear/risk off), so it’s likely to trade within the daily triangle pattern that has formed. Fear is heightened today on the back of concerns in Spain. QE will likely not rally the Dow until it’s a more tangible reality and at that time we’ll likely see dollar weakness. That said, it’s very possible to continue to see a choppy dollar and a weak equities market. That’s exactly what will propel the USD/JPY lower in the near term.
As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.
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