USD-JPY: Further Weakness Seen

By Mohammed Isah of fxtechstrategy.com

USD-JPY: The pair's continued weakness came to a head this week following a break and close below the 87.10 support zone. Further weakness is now expected.

Click here to view a chart of the pair.

The pair has been trapped in falling channels in both the daily and weekly time frames since it tumbled from the 101.43 level in April and began a bearish short-term downtrend that culminated in this week's break of the aforementioned 87.10 support level, its December 2008 low/January 2009 low (double pattern).

That double pattern served as platform under which the pair rallied to a high of 101.43 in April. Despite that corrective recovery and another, earlier one to 110.67 in August 2008, the pair's overall medium-term downtrend activated in June 2007 off the 124.12 level remains unbroken.

Having resumed that trend, the key levels we are watching now on the downside are the 84.80 level, the Nov. 26 low; the 84.45 level, the July 1995 low; the 81.77 level, the May 1995 low; and the 79.70 level, the April 2005 low.

However, we cannot rule out corrections as the pair resumes its medium-term downtrend. Such corrective price moves -- if they materialize -- should target the 87.10 zone, the former double-bottom pattern swing lows that were invalidated on Nov. 26 (Wednesday).

This zone is expected to reverse roles and provide support, thereby turning the pair lower again. Further out, the pair's Nov. 4 high at 91.31 will be targeted. A break through that level could see the pair aim at the 92.31 level, its Oct. 27 high.

Overall, further declines are expected now that the pair has resumed its medium-term downtrend from the 124.12 level.

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