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10/17/2016: Key Timing Test Awaits USDJPY



The second half of this week/first half of next week should prove pivotal for USD/JPY.  I have several key relationships converging around this time including most notably the 38.2% retracement in time of the 2011 – 2015 advance, the 78.6% time retracement of the year-to-date range and the 127% extension of the time between the June and August lows. Given this clear timing confluence I expect we’ll see at least a minimum reaction in price and possibly even something more significant.

Generally heading into these “windows in time” I want to see the market in question trending. In the case of USD/JPY, the short-term trend is clearly up as the exchange rate has been rallying steadily for the past three weeks. The medium –term trend is less clear as spot has been compressed since July. This lack of medium-term trend complicates the picture a little for me because we very well could be on the cusp of a higher volatility regime. Volatility is mean reverting after all. However, this is far from certain and with the short-term trend in USD/JPY working clearly higher and arguably pretty overextended following last week’s touch of the top of the 1-year (3rd) standard deviation channel I think the exchange rate is more vulnerable to a turn down from the timing window.

There Is a multitude of resistance between 104.50 and 105.75 and somewhere in this zone seems like a logical area for a reversal to materialize. If this zone is breached quickly this week, I would be open to a possible failure near the July high in the 107.50 area as timing is the more important variable for me here. Should USD/JPY ignore or only briefly pause during the window and achieve new cycle highs towards the end of the month (i.e. fail to respond to time resistance) then I would be forced to conclude that the exchange rate is probably heading significantly higher with the 120 region a clear potential target.  Let’s see!

-Kristian Kerr

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