(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; downtrend lines in red; chart patterns in yellow; 100-period simple moving average in light blue.)

3/03/2008 – USD/JPY – As noted in the Chart of the Day posted last Thursday, a clean and strong breakdown of a minor range consolidation (in dotted yellow) occurred last week within the context of the larger downtrend channel (in red). Following this breakdown, price has plummeted more than 400 pips. At the time of the range break, major support was projected at the bottom line of the large parallel downtrend channel. As of this writing, price action has conformed exceptionally well to this projection. The bottom line of the downtrend channel was respected, as might have been expected, with a clean turn and bounce up off this line. By no means, however, does this rule out an impending breakdown of the downtrend channel (thereby indicating an acceleration of the downtrend). Although oscillators like the displayed Stochastics are in heavily oversold territory, price is currently nearing a long-term support low in the 101.60 region which is around 100 pips below the lower boundary of the current downtrend channel. Therefore, a breakdown of the channel targeting long-term support is indeed a possibility. In the more likely scenario of a correction back up after the bounce, however, the next major resistance to the upside resides at the 38.2% Fibonacci retracement level around 107.00 (the high-to-low retracement span being measured from the last major swing high on 12/27/2007 to the current low on 3/3/2008) which coincides with the bottom line of the recently broken range consolidation (in dotted yellow).

James Chen

Chief Technical Analyst

FX Solutions

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