(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; 50-period simple moving average in light blue.)

1/14/2008 – USD/JPY – Benefiting from investors’ risk aversion, both the U.S. dollar and the Japanese yen have seen substantial gains within the past several days. When compared head-to-head, though, the yen has fared significantly better, as shown on the accompanying USD/JPY daily chart. After having broken out above a key downtrend resistance trendline in the very beginning of the year, price action hit a swing high to 94.60 last week before plummeting towards the recent 13-year lows in the pair (around 87.15). These lows have not yet been retested, but price has been quickly approaching them. In the meantime, the pair has pulled back to the above-mentioned downtrend line that it broke in the beginning of the year. At this point, a substantial break back below this trendline appears to be a very likely possibility. This should be the case even though price is technically well oversold. If a strong break occurs, immediate downside support should be in the region of the long-term lows around 87.00, while upside resistance in the event of a corrective bounce resides around the key 91.00 support/resistance region.

James Chen
Chief Technical Strategist
FX Solutions

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