Price action on the USD/JPY (a daily chart of which is shown) has just made a precise double-test of the pair’s 13-year low that was recently established in mid-December 2008. This extreme support level resides just a few pips above the 87.00 mark.

Wednesday’s price bar (1/22/2008) descended all the way down to this level, was summarily rejected, and then ended up closing around 89.50. Thursday’s bar, as of the morning, is showing some of the same nature as Wednesday’s bar. More likely than not, this pair should be seeing a consolidation above the 87.00 support. The obvious event to watch for is any major break below 87.00, which would put the pair in essentially unprecedented territory. A substantial breakdown of this level would likely carry enough bearish momentum to take the pair down at least to the 85.00 region. To the upside, the 91.00 support/resistance region remains as key intermediate resistance for the time being. And, of course, an actual double bottom reversal would only be confirmed on a substantial break above the swing high peak around 94.60.

By James Chen