Can the Yen go any higher? Fibonacci says to watch out

The Japanese yen has been on a tear, climbing very steeply to relatively new highs. Is it topping out or could it go even higher? Let's take a look. On the monthly chart, we see that the .786 retrace to the 1995 highs was at 111.49. This Fibonacci level is a key level from which price can reverse trend - in this case, meaning that the yen would reverse to the downside. This is one example of a "double top." So currencies traders and others who use the yen as an indicator should keep an eye on this. Alternatively, if price continues above this Fibonacci level, then it signals that it's likely to proceed upward and go higher than the prior swing high. Sometimes price will hesitate and start to reverse downward, but then move up above the .786 retrace level again. In my experience, this is a very telling sign that price has decided not to be "bound" by the .786 retrace as a resistance level.

When we look closer at the daily chart, we see that the Yen price did move above that level on the daily bars, then dropped below it ... but then moved above it again and now looks in a small consolidation pattern. In fact, you can also see that the 111.49 level has been acting as a pivot since mid-December. It's reasonable to think that as long as price remains above this pivot, or at least remains within the uptrending channel I marked on the daily chart, then the yen can continue on up to yet higher levels. While some of the the indicators are signaling it's starting to be overbought, it isn't greatly so; and for that matter, an overbought condition can be worked off with a sideways consolidation.

Another factor that warrants caution would be the steepness of the uptrending channel, when you see it on the monthly chart. However, that also can be worked off with a consolidation, and does not in and of itself mean that the yen price "must" reverse.

All in all, there are reasons to think that then yen's move upward still has room to go.* But of course, if it loses that 111.49 pivot level, then we could see a significant pullback or something more bearish for the yen. So keep an eye on that.

What about Japan's Nikkei stock index? Well, I'm posting some charts at my UBTNB3 site on that ... I find that a little sobering, so it would take a good fundamentals economist to either explain away my concerns on that index, or correlate what's happening there to the movements of the yen itself.

*Update 10:53 pm - Looking again at the chart, it can have traced out a large Elliott Wave triangle and now be moving up in a fifth wave thrust from that. If that construct holds, then the projected target is 135.88 (based on the range of the widest part of the triangle (the drop into the wave A low), added to the wave E point). Yes, that does seem very high! But then again, a logical Fibonacci target at the 1.272 extension of that range (the drop into the low at 68) would be 138.38, pretty close and nice confirmation.

We could also look at the 1.618 extension - less likely, but worth knowing - it would be just above 157. Another very common Fibonacci target would be the 1.382 extension, leading to 144.46 - which is also a lovely Fibonacci number (144). Still ... I like the confluence of the conservative 1.272 along with the Elliott Wave fifth-wave thrust target ~135-138.

In the meantime, the daily chart's channel gives the suggestion of a diagonal which if valid would see the current upward movement stall out at 117.69 or up to 120.95. Arguing against this being an ending diagonal, however, is the lack of a wedge shape. So it will be interesting to see whether the yen reacts to that range of 117.69-120.95 at all, or not. But - first we've got to see the yen move higher, for any of this to "work"! So let's see if the yen stays above the 111.49 pivot first, and then can vault to these higher levels.

PS - interesting article http://seekingalpha.com/article/116724-japan-s-grim-and-bear-it-2009-outlook at Seeking Alpha regarding Japan.