Will the Downtrend in USD/JPY Continue?

01/28/2010 12:01 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

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(Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; chart patterns in white; 50-period simple moving average in light blue.)

Price action on USD/JPY, a daily chart of which is shown, has recently displayed a clear continuation of the overall downtrend that has been in place since April 2009. This downtrend has manifested itself as a well-formed parallel downtrend channel.

After reaching the top of the channel in early January, and then reversing and breaking down below an important intra-channel uptrend support line extending from the late November lows, price stalled just above key support in the 90.50 price region.

After breaking down below this support late last week, the pair has continued its bearish stance into this week. Currently, the next major downside target resides around the 88.00 price region. Upside resistance within the context of the current overall downtrend resides around the noted 90.50 price region.

If further bearishness is able to reach down and break below 88.00, the pair could continue to drop, potentially targeting further support around 86.00 and towards the bottom border of the parallel downtrend channel.

By James Chen, chief technical strategist, FXSolutions.com

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