Key Points:
- The pair should be readying to reverse in the coming sessions.
- Falling wedge and double bottom structures remain in play.
- MACD crossover suggestive of a change in medium-term trend.
The Dollar Yen had an interesting session yesterday, moving rather notably against the broader market trend as the USD picked up some momentum. Whilst much of this movement is explainable by weaker bond yields and a leaky stock market, this fundamental bias is likely to be countered in the coming session as the market repositions to better reflect the developing technical bias.
First and foremost, there are two key structures in play that are now suggestive of an impending reversal and subsequent uptrend for the USDJPY. Firstly, the long-term falling wedge remains intact and its downside constraint will be providing some solid support around the current price. However, this doesn’t necessarily indicate that we are likely to have the rather strong uptrend forecasted below. Luckily, the well-defined double bottom structure present on the chart does infer such a rally is on the way which should see buying pressure mount shortly.
On their own, the two chart patterns may not be enough to spark the requisite shift in momentum to see the pair push higher and, ultimately, break through the 38.2% Fibonacci level. Fortunately, we have a number of other instruments that are supportive of just such a breakout. For one, the parabolic SAR retains a bullish bias and the stochastics are hovering around oversold. Moreover, the MACD oscillator is on the cusp of having a signal line crossover which could spell a change in the medium-term trend for the USDJPY.
Despite the cumulative evidence suggestive of this forecast, there remains one key hurdle that the pair needs to overcome. Specifically, that 38.2% Fibonacci level around the 112.10 mark will prove to be a major cap on upside potential given that it coincides with both the neckline of the double bottom and the 100 day EMA. However, due to the rigidity of this zone of resistance, if the venerable pair can manage to break free, the resulting uptick in buying pressure could be fairly spectacular and this could, in turn, see a sharp rally to upside constraint of the wedge.
Overall, there is a rather robust technical case for a reversal for the USDJPY which could see some serious gains claimed over the coming weeks. Indeed, if the US fundamentals begin to show a greater degree of consensus, we could see that 113.50 handle challenged significantly sooner than currently projected. Although, it’s worth mentioning, the JPY’s safe haven status has been dragging the pair lower more generally as of late and this shouldn’t be entirely ignored moving forward.
