Although I include USDJPY charts in practically every daily post, it’s been a while since I dedicated an entire post to its latest meanderings.  In our November 27, 2016 update, with USDJPY at 112.62, we were looking for it to backtest a recently topped channel midline and continue higher to tag 115.58 or 120.11.

As it turned out, the pair was so focused on assisting SPX to a positive end-of-the-year print that the backtest never really happened.  In fact, when the rising purple channel finally broke “down” it resulted in a 5% rally, albeit at a slower pace.

USDJPY pushed past 115, but never could make to to 120.11, falling 1.2% short.  I puzzled over its failure to seal the deal, then pretty much forgot about it after USDJPY broke down and started tagging our downside targets.

Now, another 7.2% to the good, I’ve discovered that it actually made perfect sense for USDJPY to reverse where it did.  In fact, it appears to offer great clues as to what comes next.

continued for members…

With the rising purple channel out of the picture, 118.66 high fits very nicely as the backtest of a broader, less steep rising white channel.  The two drops to 113-114 in February work well as a tag of the channel’s .236 line.

Note that after those bounces, USDJPY dropped through that line and then backtested it, indicating more downside to come.  If the falling white channel holds, USDJPY could hold off in tagging its SMA200.  Or, we could get one of those downdrafts that USDJPY’s so fond of in the next day or two.

Either way, I expect it continue selling off to at least 108-109 with an eventual goal of the channel bottom around 105.33 – 105.60 — a .618 retrace of the post-Brexit bump.The channel itself looks pretty good — although its origin is a bit of a mess.  This normally implies that it’ll tilt even more.  But, we’ll cross that bridge when we come to it.

I expect last summer’s 98.99 lows to hold, as they represented a backtest of the falling white channel from which USDJPY broke out in Aug 2014.  So, for now, this suggests the rising white channel will also hold.

As to 120.11, the .618 retrace of the drop from 147 to 75, it’s the market’s safety valve.  If/when needed, USDJPY should be able to offer a great deal of support simply by spiking up through it.  But, for now, it appears that we’re going to tag some of those lows first.

And, it makes perfect sense.  If CL is going to hold at current levels, the yen needs to appreciate a little in order to prevent more inconvenient inflation.

GLTA.