Back on May 2 [see: Happy Anniversary] I noted that USDJPY was in danger of losing its last shred of support.

USDJPY has clearly lost the support of the rising purple channel from 2011, meaning the yen carry trade is on life support.  It’s possible the yellow .786 will give it the bounce it needs, but it looks tenuous at best.

As it turned out, the BoJ must have come to the same conclusion.  Because May 2 was the bottom, and USDJPY has since bounced an impressive 4.8% — though not without fits and starts.

Now that it’s reached its first serious resistance, will it be able to punch through?  Can the yen carry trade be saved?

continued for members…

The set up is very clear.  We’ll start with the 5-min chart.  Pay special attention to the falling white dashed line USDJPY just dropped through.

Note, from the 60-min chart, that it’s stopped 4 previous rallies.Now, note the solid purple line rising through the chart.

Below, you can see that it’s the bottom of a channel that’s being backtested.  If it looks familiar, it’s because it appeared in the first chart up top.This is the channel that’s guided USDJPY since its 2011 lows.  USDJPY dropped through it, and has been clawing its way back ever since.

Stocks didn’t take kindly to the yen carry trade falling apart like that.Bottom line, if TPTB want to keep the party going, USDJPY should punch back through this channel line and continue to higher highs.  We have a three day weekend coming up in a few days — a favorite time for such deeds.

If it can’t push through, then CL is all on its own — unless the euro becomes the new carry trade vehicle of choice. [see: Update on EURUSD.]

Stay tuned.