USD/JPY Bullish Wolfe Wave vs Bearish Divergence on Indicators

FX:USDJPY   U.S. Dollar / Japanese Yen
USD/JPY Bullish Breakout or Bearish Continuation?

USD/JPY continues being range bound, even with a strong
USD and the Yen fundamentally weak after BoJ proceeds
with quantitative easing. Naturally, since the DXY is taking
a breather and fighting resistance at 95.15/20, this pair
will remain range bound, though new highs are of the
essence if USD/JPY is to become bullish .

The close of this weeks candle occurred at a very
precarious level, namely, below 111.50, which is the
bearish cross over level of the 100 & 200 SMA . For the
moment the 100 SMA continues to be supportive as well
as moving in an upward angle. However, price got
rejected at the 200 SMA two weeks ago, thus, making the
113.18 level extremely crucial for the coming week.

I believe if price can close above this weeks candle, i.e.
above 112.15, we then should see price reaching towards
the resistance at 116.00. Hence, the 116.00 level will be
crucial in determining long term direction of USD/JPY .
If price does not make it past or close above 112.15 this
coming week, then there is still hope for bullish
momentum to stay intact if the 107.30 level holds. Per
an AB=CD pattern, as indicated on the chart, price can
rally to the 116.00 level if the 107.30 holds.

The bullish Wolfe Wave as indicated is still valid, as long
as price does not close below the 107.30 level which is
the low of point 3 of the Wolfe Wave pattern. A close
above the 116.00 level would mean that this market can
go on to reach past 125.86 level and beyond. Actually for
bulls it would be preferable for price to retrace, and then
resume a bullish trend as the diagonal target trend line
formed by points 1 to 4 would mean higher targets.

Looking at the indicators, RSI , MACD and Stochastics, a
less bullish scenario presents itself. The RSI and MACD
have a very clear bearish divergence pattern. In
addition, with price below the 111.50 level, means that
the bearish 100 & 200SMA cross over seems valid,
especially as price got rejected at the 200SMA. Also the
100SMA is yet to prove supportive since the large break
out to the upside one month ago, hence, a close below
110.28 could potentially signal a long term downtrend.

In summary: The key levels for this coming week are
support at 110.28 and resistance at 112.15. A close below
110.28 would signal a re-test of the 107.30 level. A close
above the 112.15 level would potentially enable a rally
to the 116.00 level. For the longer term, a close above
the 116.00 level would enable highs beyond the 125.80
levels. A close below the 107.30 level could potentially
spell a longer term bearish trend down to the 102.00 -
100.00 levels.

Check out my detailed analysis for USD/JPY for daily and
4 hour time frame after this.

Happy trading


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