Last week, I had made a long term call for an imminent major bottom in USDJPY at the 107.00-107.30 level. I had expected it could be achieved as soon as last week. USDJPY hit a low of 107.63, and staged a relatively strong rally over 3 days to reach 109.70. It has since retraced at the close of the week to 108.70.
In the hourly chart shown here, the wave(5) down trend that started at 113.80 has probably done waves<1><2><3> to 107.63 so far. The subsequent rebound to 109.70 may or may not be the high of wave<4>. Indeed, although wave<4> can trace out in a variety of patterns and it is not possible to ascertain at this point, my preferred wave count is that wave<4> will retrace higher to the 110.60-90 level. Once wave<4> is finished, there will be a wave<5> of wave(5) down move below the recent low of 107.63.
At this point, I would like to ask interested readers 2 questions:
1. From 113.80, since we have labelled waves<1><2><3>, what could be a good estimate for the length of wave<5>?
2. If we expect wave<5> of wave(5) to end at 107.00 (as suggested by my previous post on the big trend), at which level could the high of wave<4> be?
For this week, since wave<4> could trace out in a variety of patterns, traders may choose to stay out. If anything, I would expect 108.40-50 to be a strong support for it to launch a rally towards the wave<4> high target of 110.60-90 (my preferred count). Then wave<5> down. So short term traders may try a long at 108.50, stop at 107.95.
What could be the catalyst for such a rally this week? BOJ meets on 28 April, the following Thursday. So in the current week, there may be more official rhetoric to drum up expectation and hope for BOJ to take strong measures to weaken the JPY. Also, ECB meets on 21 April, this Thursday. A sharp fall in EUR will also push USDJPY higher. If the above scenario plays out, Then, USDJPY may be setup for a BOJ disappointment come 28 April, resulting in a classic "buy on rumour sell on fact" situation to fulfil the wave<5> of wave(5) down move into early May 2016.