On Aug 30, with USDJPY at 102.47, we put a target of 104.24 on it, noting that it represented the top of a well-established channel and a key Fib level.

USDJPY obliged by tagging our target three days later, then reversing as expected.  At the time, there seemed to be considerable downside potential.  A client who actively trades the USDJPY asked for downside targets, and I posted this chart on the 6th.

We were almost immediately rewarded with a drop to 101.19, “d” on the chart below.  The subsequent backtest came very close to tagging “c.”  Everything was going really well.

Then, all of a sudden, it didn’t.  Nothing was happening.  USDJPY headed in the general direction of target “e”, but reversed on the 12th at a point that created a new, rising channel.  For another week, USDJPY angled higher, buoyed by suggestions that the BoJ would increase its easing.

I didn’t’ believe the suggestions, as the BoJ has painted itself into a corner with respect to NIRP and currency devaluation.  As the latest policy meeting approached, I added some downside targets that equated those original targets “e” and “f.”

The announcement was as obtuse and delusory as anything Draghi might have dreamt up.  But, cutting through the BS, there would be no additional easing — only an attempt to steepen the yield curve.  As it loves to do, the BoJ forced USDJPY higher in a self-congratulatory spasm, breaking out of the extension of its original falling channel.

Holding short during that 30-minute, 1.77 spike would have required nerves of steel.  And, that was the point, right?  Stopping out those of us who saw the downside case as being obvious?

By the time the dust settled, those price levels were as accurate as could be — even if it took a little longer than expected.  Total move, from 102.47 up to 104.24 and down to 100.09: 5.92.  A very nice 3-week return.  And, though it took more than a little patience, it was worth every sleepless night.

With the ECB, BoJ and FOMC all having trotted out their brilliant plans for a recovery (what’s the hurry…it’s only been 9 years?) we’ll take a look at what to expect next.

continued for members…

Before we pull back and look at the big picture, note that USDJPY is pushed up against the top of that falling, purple channel.  It’s in a position to break out, which is where it loves to hang out these days — especially on days when stocks sell off.  It makes shorts nervous, which is, after all, the point.

Next, note that all those spikes reversed at the top of the falling red channel that’s been in place for almost a year.

I count seven serious tests of the red channel top since December 2015.

And, looking at the big picture, there’s no particular reason to believe it’ll break out now.  As we discussed the other day in the run up to the BoJ/FOMC decisions, the “market” can rely on a higher USDJPY or a higher CL to keep the rally going.

Having both going at the same time is problematic, as higher oil prices would compound a lower yen value (higher USDJPY) in Japan.

In our latest forecast, I mentioned CL would run out of room by mid-October — ideally Oct 11.  The small, rising white channel that’s propped up USDJPY since June 24 doesn’t depart the falling red channel until the end of October.  So, it could go sideways for the next month, waiting for its time to shine — when CL starts to decline.

Wouldn’t you know it… the BoJ has another policy meeting on October 31 – Halloween.  Does anyone remember the tricks BoJ played on October 31, 2014? [see: Trick or Treat]  USDJPY moved 3.26 that day alone and a total of 13 over the next five weeks after the BoJ officially began monetizing all of its debt.

It was timely, because SPX had just broken down from a rising channel dating back to 2011.  It had shed almost 200 points from its September highs before finally being rescued by Jim Bullard, who went on Bloomberg and suggested that QE might be extended.

The Bullard bounce took SPX all the way back to a deep, .886 retracement on Oct 30.  The next day, Oct 31, was the day it should have retreated.  Instead, it was the very day the BoJ announced a massive QQE expansion.  Coincidence?  I think not.

I don’t know if oil is going to be able to carry the ball through mid-October.  Today’s 5% plunge doesn’t inspire confidence.  If it can’t, then USDJPY will no doubt step up to the plate, break out of that falling red channel, and make its way up to 108.58 by early October.

If CL can make any headway — even if its 3 steps forward and 2 steps back — then USDJPY will bump along for the next few weeks, ready to break out if needed.   If CL’s breakout is strong enough, USDJPY might even take the opportunity to dip down and tag its .618 at 94.83 or, if it hurries, the .236 at 92.57.

Remember, stronger yen (lower USDJPY) are needed to purchase more expensive oil.  It’s part of the central banker deal.  Speaking of deals, there’s an FOMC meeting on November 1-2 and, of course, the election on Nov 8.  So, look for the usual coordination of market-propping if necessary.

GLTA.