Dollar-Yen: Downleg (Spike ?) Into Early Next Week
$/yen near term outlook:The market did indeed finally resolve lower from that long discussed triangle/pennant that had been forming since late Aug, reaching a low at 118.05 last week and before bouncing back. It’s not uncommon for markets to retest these key, broken levels before resuming the larger trend (down in this case), and continues to target declines below that Aug 24th spike low at 116.45. Note too that technicals remain negative (see sell mode) and there is scope for another downleg (potentially sharp) in the S&P 500 below that Aug 24th low at 1867 nearby (within the often dangerous mid/late Oct timeframe, and a correlated market). But be warned, such a move lower may again be a relatively short-lived spike versus the start of a more sustained decline (see longer term below). A final comment, would keep a close eye on the “apex” of that triangle from Aug (where the trendlines meet) as the timing will often coincide with market reversals (looks like it occurs early next week, a downside spike/reversal into that timeframe ?). Key resistance is now at the broken base of the triangle (currently at 119.65/80) and the bearish trendline from last Aug/ceiling of that triangle (currently at 120.15/30). Nearby support is seen at last week’s 118.00/10 low and that Aug 24th spike low at 116.40/50. Bottom line : further declines below that long held 116.45 still favored, but magnitude a question.
Strategy/position:Still short from the Aug 25th sell at 119.80, and for now would continue to stop on a close 20 ticks above the ceiling of the month long triangle. But will want to get much more aggressive on a resumption of the downside and especially a break below 116.45, as the magnitude of such a decline is a question (and need to reflect that risk in the position/stop).
Long term outlook:View of a major top in place at the June high at 125.85 for at least another 6-9 months (and likely longer) remains, after finally resolving lower from that long discussed bullish channel from Dec 2014 this past Aug. Lots of long term negatives continue to support this view and include bearish long term technicals (sell mode on the weekly macd for example), a severely overbought market after the last few years of sharp gains, likely completion of the 5 wave rally from the Oct 2013 low at 96.55 (and potentially the 5 wave rally from the Nov 2011 low at 75.55), and an important top seen in the S&P 500 (correlated market, see email from last week). However as warned above, the magnitude of declines below that 116.45 area is a question (at least initially) as “pivotal”, long term support lies just below. Seen “pivotal” as it could provide as much as a few months of correcting (within the long term downtrend) or could just trigger a further downside blowout on a clear break below (see in red on weekly chart/2nd chart below). This “pivotal” support area is seen at the bullish trendline from 2012 (currently in that 116.25/50 area), then the base of the bullish channel from 2012 (currently at 113.25/75). Note too this fits the view in the S&P with its “pivotal” area just below that Aug 1867 low in the 1800/25 area (see email from last week). Would also look to use one market to confirm the other in regards to the reaction to this “pivotal” area (and given their correlation). Bottom line : major top in place for at least another 6-9 months (and likely longer), but nearing “pivotal” area that could hold for a few months (within the long term downtrend).
Strategy/position:With a more major top in place, would stay with the bearish bias that was put in place on Aug 25th at 119.80. However, will be looking to reassess on approach of those “pivotal”, longer term support areas.
Current:Nearer term : short Aug 25 at 119.80, scope for another sharp downleg into early next week.Last : long Aug 17 at 124.30, stopped Aug 19 below base of month long channel (124.10, closd 123.80).Longer term: bearish bias Aug 25th at 119.80, major top (at least 6-9 months seen in place).Last : bull bias Aug 5th at 124.85 to neutral Aug 12th at 124.20.