USDJPY finally confirms a medium-term top
As we have already highlighted on a couple of occasions this year (A major top for Japan, 20th January), we have been bears of Japan, looking for conclusive reversals of the bull trends in USDJPY and the Nikkei/TOPIX. The brief spike post the BOJ has been aggressively reversed, and for USDJPY, the longlooked for top below 116.15 has in our view finally been confirmed. We thus stay bearish and look for further weakness to 113.99/85 next, ahead of support from a rare price gap from October/November 2014 at 112.56/33. This should be allowed to hold at first, ahead of the sell-off extending to 110.09/00 – the September 2014 high and psychological support. Bigger picture, we target 106.65/60 – not only the measured target from the top, but also the 38.2% retracement of the entire 2011/2015 bull market. Resistance shows at 115.85/86 initially, then 116.15/30, with 117.54 needing to cap to keep the immediate risk bearish.
For GBPJPY, the recovery in late January was capped by a cluster of resistances at 174.87/176.18 – the 38.2% retracement of the 2015/2016 collapse, April 2015 low and falling 13-week average – and the subsequent rejection from here maintains a large top. Key support is seen from the January 2016 and 2014 lows at 163.99/88, below which should act as the catalyst for a resumption of the downtrend to 160.02/00, ahead of the 50% retracement of the 2011/2015 bull market at 156.37.
For EURJPY, the stronger EUR is keeping the cross, for now at least, well supported above pivotal price and “neckline” support at 126.18/09. Although a large topping threat is present, only below 126.09 would see this confirmed, turning the outlook bearish for 124.97 initially, then 121.95.
When looking at the JPY in Trade Weighted terms, a base was completed at the beginning of the year. The BOJ spike was contained well above the uptrend from June 2015, and the subsequent strong rally maintains the base. We thus stay bullish and look for further broad-based JPY strength. Given the still strong relationship between the currency and equity markets, this is expected to keep equities under pressure.
For the Nikkei, the post BOJ bounce has also been quickly reversed, leaving the market retesting its recent low and 38.2% retracement of 2011/15 rally at 16055/15. Below here, which we look for, should confirm a medium-term top is in place, for a decline to the 50% retracement and price support at 14545/30, then 13885, the low of 2014. The measured target from the top though is seen set lower at 12920.
The TOPIX though is already below its 38.2% retracement of the 2012/2015 bull market at 1317, and with a medium-term top already in place, we stay bullish and look for weakness to extend to our 1197/77 next target – the 50% retracement and late 2014 low.
Go short USDJPY at 116.30/117.30, place the stop above 118.30. Take profit at 106.75.
Go short Nikkei at 17000/17200, stop above 17950. Also add below 16000. Take profit at 13200.
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