It is amazing to look at the Long-Term USDJPY chart back to the 1970's and see how many "Tops" take on the appearance of a Head and Shoulders and in most cases hit and eventually exceed their targets.
1999 was the exception to that although we still broke below the "neckline and fell a further 600 points.
Today's patten has a neckline some way below here at around 139.20 and if broken a long-term target as low as 117.
I am clearly not saying it can go there over time (or not saying it cannot) but for the moment USDJPY remains very vulnerable.
Which of these prior periods does the pattern look most like ?
For me the most similar in pattern is 2003
That was the end of an easing cycle (June 2003) and a Fed on Pause until June 2004 when it then raised rates.
I am also sympathetic to the overview of the 1995-1998 rally (3-years and 4 months) compared to 2021-2024 (3-years and 6 months) and subsequent turn lower. (15 months- which would take us to October this year.)
That retracement was 61.8% of the up move (log chart) which would be the equivalent of 122 today.
What would be a logical catalyst for a continued fall?
Well, yield differentials for one thing. I retain a view that we are heading lower on US long end yields (Possibly sub 4% on US 10-year yield). At the same time, we are at a big pivot on the Japan 10-year yield chart.
IF we see this break over 1.47% then a move towards 2% looks a likely target.
So, IF we went to 4% on US 10's and 2% on Japan 10's then the spread would be 200 basis points.
The last time this spread was at 200 bp's was in 2022 when USDJPY was at 122.
IF we also saw equity markets "wobble" (No strong signals of that YET) that would add fuel to the flames.
The most important message here seems to be that there are no signs that this down move in USDJPY is overdone and every sign it can go further.
The initial 148.65 target is logical but if we see the yields moves above start to materialise and the spread continue to narrow then at least a test of that support below 140 looks a more likely outcome.
