Yen Time Cycle, Yen Index, AUD/JPY, EUR/JPY – Talking Points.

  • The yen is poised to extend its recent decline after breaking below 6-year trend support.
  • AUD/JPY is focused on multi-year highs after breaking out of an ascending triangle consolidation.
  • EUR/JPY staggers higher despite sharp RSI divergence. Is there a reversal on the downside?

As August draws to a close, long-term investors will be keeping a close eye on how the yen closes out the month as… cyclical analysis (math.) Indicates that the safe haven related currencies are likely to underperform their major rivals significantly over the next 6-9 months.

Yen Index** Monthly Chart – Cyclical Decline Looming?

Yen Index** Monthly Chart created using TradingView

**Yen index averages USD/JPY, AUD/JPY, GBP/JPY, EUR/JPY.

As noted in previous reports, the yen has broadly followed what appears to be an eight-year rotation, with significant bottoms set in late 1998, early 2007 and late 2015 for the yen index.

After bottoming out relative to its major peers, the yen subsequently appeared to outperform early in the cycle, with key highs set about two years after the 1998 and 2007 lows.

While the yen surged to its current cyclical high just 13 months after the start of the period, it appears to mirror the price action in the second half of the 1990-98 and 2007-2015 cycles. In the latter case, it rose to set a sub-par high less than six years after the low set in 2015.

With that in mind, a monthly close below trend support extended from the 2015 low – coupled with the RSI breaking its 73-month uptrend – could signal a cyclical decline for the yen, with cycle analysis suggesting that the yen could fall as much as 30% from current levels before bottoming out in 2024.

 

AUD/JPY Daily Chart – AUD/JPY will continue to move higher as the RSI moves into overbought territory.

Japanese Yen May Extend Fall as AUD/JPY, EUR/JPY Eye Multi-Year Highs

AUD/JPY daily chart created using TradingView

The impulse surges through ascending triangle (math.) The August 27th resistance signals a possible extended upside move in the AUD/JPY exchange rate, as the RSI breaks its 12-week downtrend and the MACD crosses its ‘slower’ signal line.

That said, a near-term pullback is likely as the price encounters confluence resistance at the 2014 downtrend midpoint and psychological key 78 level, while former resistance-turned-support at the July high (76.87) could limit the potential decline.

If key support remains intact, the path of least resistance for AUD/JPY appears to be higher, with the implied measured move suggesting that price could climb to the upper boundary of the 2014 downtrend and above the 38.2% Fibonacci (79.17) to test the 81.00 handle.

 

variations exquisite shorts OI
daily 1% 0% of the total 1%
Weekly 66% -3% 21%

 

EUR/JPY Daily Chart – Rising Wedge in Action

 

EUR/JPY daily chart created using TradingView

Significant RSI divergence suggests that EUR/JPY’s 10.8% surge from the May lows (114.39) may have run out of momentum and could reverse down as the price carves out a bearish… Rising Wedge Patterns.

However, the price remains constructively above the 21-day moving average (125.39) and the 125 level, while the RSI and MACD indicators continue to track in positive territory.

Thus, if the rising wedge support remains intact, a retest of the April 2019 high (126.79) could be in the cards in the coming days.

A daily close above the 2019 high (127.50) would be needed to invalidate the bearish continuation pattern and open the way for a test of the 2008 decline and the 130.00 handle.

Conversely, a break back below the 21-DMA (125.39) could intensify selling pressure and could see price dive back to support at the June highs (125.59).

 

variations Exquisite. shorts OI
daily -3% -1% -2%
weekly -7% -7% -7%

 

— By Daniel Moss, Analyst, DailyFX

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2020-08-30