Many moons ago, we posted the above bullish longer-term picture of USD/JPY sporting Fibonacci bands and Gann angles. More recently, we questioned our longer-term interpretation back on January 18, 2003, by suggesting that certain chart overlaps were bothering us, and that after a final bounce to 122, USD/JPY could start to "fall off the cliff." So far, we got that mini-bounce, and we have started a slide lower in the past several days that has surprised some in the market.

We now stand at a critical junction. Should USD/JPY start to slip below 116, then the Gann angles depicted above will have clearly been broken, and the dollar could face a fast flush lower against the yen. However, some possibility still exists that within a complex corrective formation, USD/JPY ends up holding right around here. We'd give this latter path a lower general probability, but it still remains one.

We do not wish to prognosticate at this time how this chart pattern will ultimately be resolved. What we do know is that if USD/JPY continues in the short term to waffle between 117 and 118.50, and we creep toward our March 17-18th, 2003 PEI cycle date still trading within this range, it will be time to step up to the plate and buy some volatility (both puts and calls) in anticipation of a imminent breakout of some magnitude in this chart pattern.

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