The Chart du Jour

Another Trend Ends - For Now

January 16, 2001

By, Barclay T. Leib


Chart produced using Advanced GET End-of-Day

Any regular reader of this site will likely remember that longer term we are huge bulls on the U.S. dollar against the yen. Our longer term Fibonacci bands suggest prices toward 168-169 will eventually be seen (see the Feb 6th, 2000 Chart du Jour), and we specifically spotted the brewing upside breakout back on July 6th, 2000.

Although our bullish view was first met with a bit more blagh sideways chop in 2000, we were never stopped out of our suggested long on that latter day, and better yet, we also jumped aboard the even more dramatic euro-yen upmove as of December 12th, 2000.

And yet, the euro left the "ping" of a high basis its Fibonacci rhythm last week, and Tuesday saw USD/JPY reach 119.40 - a near perfect 38.2% retracement of its 1998 decline. If the euro already has been retracing recent gains, it's now likely the dollar-yen will join it in retracement mode. Tuesday's price reversal already started a bit of this, but we see the possibility for USD/JPY to fall all the way back into the 112.53-114.90 region before further strength resumes.

Maybe this will be caused by some false glimmer of pick-up in the Japanese economy or maybe it will simply be caused by the usual herd of Japanese exporters spotting a Japanese candlestick "engulfing pattern" and deciding that it's a proper time to do some dollar hedging. Either way, the easy money is over here for the moment, and trend followers late to the game or slow to get out of long dollar positions are likely to give back a sizable part of their recent gains.

Should our anticipated dip/reversal into the 112.53-114.90 region transpire, we will undoubtably be all over buying back into this market, but for now we have to head to the exits on our long dollar-yen trade. It's funny how one by one, this year seems to be turning into a "take profit" affair as opposed to any aggressive new position taking. Only in the metal sector -- gold and silver -- do we see any worthwile new risk-reward opportunities brewing (see other recent articles).

Longer term, the 119.23 region of resistance in USD/JPY will of course likely fall, and and as such, it's probably not prudent to try to aggressively play the anticipated short term pullback. For sophisticated investors, short-term "range bet" plays might be appropriate, but we see no reason for speculators to try catching every last jiggle against a more major longer term trend. It's just not worth it. We'd rather just stand aside for the moment in this market so as to be more mentally refreshed to repurchase dollar-yen at better levels or at a later date. When we do finally eat through 119.23-119.40, the next move should be toward 124.66 and then 136.78 (the next major Fib target).

But first things first. The Fibonacci 38.2% level must be respected on first touch, and a few johnny-come dollar-yen trend-followers need to be shaken out.

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