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Yen ETF preparing for a breakdown


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In last week's post we described a very bullish case for the Dollar ETF. Today we're looking at how the upcoming currency moves might play out for the CurrencyShares Japanese Yen Trust (NYSEARCA: FXY).

In March we showed how the Yen ETF was approaching the end of a potential Elliott wave bearish triangle that had spent the previous four years in a converging range. Even though our outlook was and still is bearish, we also cautioned traders to expect another bounce before price could break out of the triangle. The bounce took place mostly as expected although it started from a slightly higher level than the support we identified.

The structure of the spring bounce has led us to make a minor revision of our wave count for the Yen. It now appears to count best by treating the recent test of resistance as marking the end of the triangle. If that's correct, we would expect to see a downward cascade during the next year.


So far, price has rejected a test of Fibonacci-based resistance at 89.24. That level is outside the trend line boundary of the converging range, but it doesn't violate Elliott wave rules for a triangle. Additionally the Lomb periodogram shown at the base of the chart predicts that price is currently near a local high. Ideally we should see a fairly consistent press downward from the resistance area.

Even though we are now bearish even in the near-term, we can't rule out a test of the next resistance level at 90.41. That development shouldn't knock bears out of the market, but a weekly close above that level would make the near-term bearish case much less likely.

The area of the previous high at 91.62 represents the absolute limit for price to rally while keeping this specific bearish count alive.

Preliminary supports and targets for FXY include 85.41, 79.26, and 76.51. Each of those supports is a candidate to produce a small bounce.

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