Breaks higher, extends countertrend recovery rally

• USD/JPY breaks a critical level and extends its bullish lead.
• The bullish moment could signal an expansion.
• Alternatively, it may have completed a three-wave correction that could eventually reverse.

USD/JPY is clearly above the Oct. 3 high of 147.24 on an intraday basis, suggesting a continuation of the short-term uptrend, with a tentative target at 149.40, the Aug. 15 high.

USD/JPY Daily Chart

The strong upward momentum from the August low, as measured by the MACD (Moving Average Convergence Divergence) indicator, could indicate the start of a new longer uptrend.

Additionally, the robust bounce back from the December 23 and September lows – which brought the price back above the major trend line for two days and the key September 2 highs – is further evidence of optimism.

Alternatively, the pair could also appear to be close to completing a three-wave “abc” corrective pattern of the downward move that began after prices turned after the July peak.

A close below the 50-day simple moving average (SMA) at 145.24 would likely indicate a resumption of the medium-term downtrend from the summer. Such a move would be expected to reach wave B lows around 141.72.