USD/JPY and JPY Pairs Correct

USDJPY-May-26-2013

USD/JPY Weekly Close: 101.30 (-1.90%)
Weekly High/Lows for:

USD/JPY 103.74/100.69
EUR/JPY 133.82/129.96
GBP/JPY 156.56/151.79
AUD/JPY 100.97/97.13
CAD/JPY 100.31/97.31

USD/JPY Weekly Pivots: S3: 97.03; S2: 98.86; S1: 100.08; P: 101.91; R1: 103.13; R2:104.96; R3: 106.18

USD/JPY and JPY PAIRS: USD/JPY gave back the previous week’s gains, and all of the highlighted JPY pairs in the chart weakened as well. In fact, the broad-based dollar rally of the week before ran into some headwinds across the board and gave back some gains. Even equities closed lower, with the S&P down 1% and the Nikkei 225 down over 10% in one week. The market has been taking on risk the last few weeks so risk appetite has been positive and perhaps it is time for the market to retrench and give back some gains? Last week we said that these trends should continue, but that new positions should be taken on market setbacks or corrections, not at current levels. We are finally seeing some signs of unwinding of positions or profit taking, after very strong trend moves, that is very likely to continue into this week.

Moving to the technicals, we posted 6 currency pairs to see where the potential correction might take us. Using the Elliott Wave rule of thumb that moves off the highs will correct to the 4th wave of the lesser degree, we have highlighted the 4th waves on the attached charts: USD/JPY and EUR/JPY should correct to the triangle pattern; GBP/JPY, CAD/JPY and NZD/JPY could correct to the gold dotted line pointing out the previous 4th wave. The only pair that has met its initial corrective target is the AUD/JPY, which began its sell off more than a month ago, with the drop in Gold. Since corrections move in 3 waves at a minimum, look for 5-3-5 or 3-3-5 patterns on a smaller time frame. Last week kicked off the initial move down in 4 out of 6 pairs and a pullback in these pairs, without making new highs, will lead the way for another corrective drop to meet the corrective 4th wave of a lesser degree target.

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