I looked at the various charts for USDJPY pair for a long time before writing this technical overview for the pair over medium term and long term basis. I discovered that the monthly graph was the most reliable to assists us define the potential support and resistance levels using Fibonacci expansion tool besides classical levels as provided below.
Let us move to our main chart, where the pair has been capable of forming one of the most accurate harmonic patterns. It is a bullish harmonic AB=CD pattern which started after placing the peak of 135.16 in January, 2002 as seen on the monthly chart below.
From 135.16, the pair has collapsed to 101.65, forming the first leg of our suggested harmonic structure which corrected ideally to form the BC leg at the famous Fibonacci retracement level of 61.8% of AB leg.
The most important technical factor that should be put into the technical analyst's consideration when drawing a harmonic AB=CD pattern is that the price should go beyond B level to confirm the structure; thus, coming below 101.65 has detected that the CD leg has started in October 2010 via stabilizing below the aforementioned level. Actually, the harmonic alternation rule proposes that areas of 161.8% Fibonacci projection should represent the ideal PRZ or rather the potential reversal zones of the harmonic AB=CD pattern when we have 61.8% correctional BC leg. But, we can see on our hart how the pair has extended its downside actions below 161.8% and started to mildly retrace from 200% Fibonacci projection.
The positive divergence on Stochastic was the major rational technical reason that argued us to suggest 75.50 to be the reversal point although the ideal 200% Fibonacci projection level of BC leg resides at 79.75 but I would like to remind you that we are using a monthly chart, not a weekly chart, not a daily one; thus, 350 pips difference is not a big deal since we are talking about a pattern that started in 2002.
To summarize this, breaching through 79.75 levels with a monthly closing or at least with a weekly closing will be an indication for a huge reversal, mainly targeting the classical resistance areas of 84.80, while the scientific technical objective of this harmonic formation resides at 93.95 -38.2% of CD leg-.
Do we have signs for bottoming on the smaller time frames?
- There is a classical probability for double bottoming over the weekly chart with a neckline at 78.20-78.30 zones.
- MACD is still negative but it seems that it is on the way to reverse.
- The scientific technical target of the double bottom pattern will take the pair easily above SMA 50 which is also valued at 79.75.
This bullish scenario for the USD/JPY pair will fail if 70.00 zones fall, but we should carefully note that a break below 75.50-75.25 zones will motivate the bears to take the pair towards this psychological level.