USD/JPY Weekly Outlook

USD/JPY rose to as high as 114.54 last week but lost momentum ahead of 114.73 key resistance. Considering bearish divergence condition in 4 hour MACD, a short term top is possibly formed. Initial bias this week is neutral first. Break of 113.51 will bring deeper pull back to 38.2% retracement of 110.37 to 114.54 at 112.94. We’d expect strong support from there to contain downside and bring rebound. On the upside, decisive break of 114.73 will confirm larger bullish case. Next target will be 118.65 resistance.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds.

In the long term picture, the rise from 75.56 (2011 low) long term bottom to 125.85 top is viewed as an impulsive move, no change in this view. Price actions from 125.85 are seen as a corrective move which could still extend. In case of deeper fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77. Up trend from 75.56 is expected to resume at a later stage for above 135.20/147.68 resistance zone.