After the better US non-farm payroll led to dollar strength and widened US rates, the importance of US 2Y-10Y spreads shifting the USD sentiment while some market participants started to talk about a possible revival of the JPY carry trade on the back of it.

Big houses such as MS and G.Sachs already called the dip in USDJPY around 85.00-86.00 area for a long time while Nomura, despite getting stopped out in their short core USDJPY position at 90, still keeps the battle on against the ongoing momentum and see no reason to change their view that JPY will appreciate, with USDJPY reaching 83 in March 2010.

This is one of the good times where you can find a pair which can have sustainable rallies or drops on the back of fundamental&technical at the same time, and USDJPY is probably the best.

With the first paragraph of the email forming the base of a possible long-run rally, USDJPY had a nasty squeeze down to 87.37 after breaking the 55 days SMAVG at 89.75 in the first half of December, 2009. Since then, a trend-ray is formed with daily oscillators building up a strong momentum due to buy on dips price action.

A break of 91.56 in yesterday’s session and daily close above (closed at 91.83) was important to keep the strong momentum as USDJPY now targets the topside of the 8 months bearish trend channel at 92.14 on a day Japan is out and less exporter offers on the topside vs. stop-loss orders of bearish market players.

A daily close above 92.14, will confirm a break of the downside trend and give extra momentum to have a quick squeeze up to 93.50-80 level where we have 200 days SMAVG (93.79) and topside of the short term bullish channel (93.56).

As you can see the daily chart shows the momentum and the a possible break of the bearish clearly but what is more interesting is the weekly chart. In weekly chart, the topside of the channel is at 91.86 and a close above signals a very big reversal which suggests a test of the 38.2% Fibonacci retrace of the 124.13 to 84.83 drop at 99.85. I think if the trend is broken, We will be having a further rally in USDJPY which may end up testing 108.50-109.10 on the topside. ( 109.12 is 61.8% Fibonacci retrace of 124.13-84.83 drop )

I think this will be the last charting email of the year, 2009.

Wish you all the best and luck in 2010.