USD/JPY: Another False Break? Time To Buy? - Goldman Sachs

On last Wednesday, USD/JPY broke through the top of a large triangle pattern which had been forming since early-December before it reversed quickly back lower again, notes Goldman Sachs.

"While this is disappointing, the broader setup does still look quite positive. Moreover, this isn’t the first time that USDJPY has failed to sustain a break from a bullish triangle," GS adds.

"Both of the recent triangle breaks in Jul. ‘14 and Oct. ’13 failed to see follow-through on the initial move higher. These failures ended up doing very little damage to the overall trend. In other words, despite retracing quite a bit on Thursday, the market ultimately looks as though it is still going to ~124 (the target from the ‘07 wedge)," GS clarifies.

Going back to present price action, GS notes how a textbook the rally has been in recent weeks.

"The entire triangle is composed of 5 swings in either direction making it a classic ABCDE formation that ended at the Feb. 1 st low.  From Feb. 1 st onwards, a 5-wave rise developed which reached a high of ~120.48; a near perfect 1.618 extension target taken from the Feb. 1 st low (120.53)," GS notes.

"Everything from 120.48 should really be considered part of a corrective process.It has retraced ~50% of the Feb. 1 st/11th rise into 118.56. A deeper retracement could extend as far as 61.8% at 118.11. In order for this sequence to remain valid however the market cannot go any further than 118.00 which is the top of wave 1," GS argues.

"Bottom line, if this interpretation is correct, then this could well be the ideal place to consider establishing bullish exposure," GS advises.