Price & Time:USD/JPY Year-End Surprise?

Talking Points

• EUR/USD probes key upside pivot
• GBP/USD stalls after making a new low for the year
• USD/JPY fails just shy of 119.00

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Foreign Exchange Price & Time at a Glance:

Price & Time Analysis: EUR/USD

Charts Created using Marketscope – Prepared by Kristian Kerr

• EUR/USD probed above key Gann resistance at 1.2580 yesterday
• Our near-term trend bias is negative in the exchange rate while below 1.2580
• A close under 1.2440 is needed to confirm a resumption of the broader decline and reinstill downside momentum in the pair
• A turn window is seen around the middle of next week
• A close over 1.2580 would turn us positive on EUR/USD

EUR/USD Strategy: Like the short side while below 1.2580.

Price & Time Analysis: GBP/USD

Charts Created using Marketscope – Prepared by Kristian Kerr

• GBP/USD fell to a new low for the year yesterday before rebounding from just under the 12th square root relationship of the year’s high 1.5620
• Our near-term trend bias is lower in GBP/USD while below 1.5840
• A close under 1.5620 is needed to signal that a new leg lower in the rate is underway
• A minor turn window is eyed today
• A close over the 2nd square root relationship of the year’s low at 1.5840 would turn us positive on Cable

GBP/USD Strategy: Like the short side while under 1.5840.

Focus Chart of the Day: USD/JPY

With markets trending again (perhaps more importantly in the desired direction of the monetary authorities) there is a lot of excitement about a continuation of these trends into the end of the year. A so called “Santa Claus rally” so institutional managers can lock up performance fees. In the FX realm, Santa Claus is clearly focused on USD/JPY as I keep hearing of year-end targets of 125.00. Perhaps this year will be like all the rest, but I have a feeling it won’t. An abundance of key cyclical relationships in the yen all coincide in December (the first part of the month and the days before Christmas look the most significant). With sentiment towards the yen at some of the most extreme levels I have ever seen (JPY at single digit DSI on day, week, 2-week and 3-week time frames) USD/JPY is looking vulnerable to a decent shakeout next month. For the record, this year-end “surprise” would not be without precedent. Just take a look at the price action in USD/JPY from December of 2005 to see what can happen when the market as a whole is leaning the same way and looking for the same thing. Coincidentally 125.00 was a popular year-end Santa Claus rally target then too.

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This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX