Market Analysis

Dollar/Yen: Tuning Into Long Wave

Perhaps it’s the slight uptick in US 10-year yields following the US Senate’s 51-49 decision to pass a tax plan on Saturday, but the subsequent rebound higher in dollar/yen has certainly got some technical analysts talking. Writing on Monday, IFR could write of purported stops above 113.00 but from a chart perspective their focus was more specifically on 113.17, the then top of the daily ichimoku cloud. Meanwhile over in Tokyo, Mitsubishi UFJ Morgan Stanley’s (MUMSS) chief technical analyst Naohiko Miyata is taking a very long view based on Elliot Wave theory.  Also writing on Monday, Miyata’s opinion is that “USDJPY could enter a long-term uptrend on a clear break above 114.73.” From an intraday perspective it might seem odd to fixate on a level curently so far away from spot but, as previously mentioned, the MUMSS analyst is taking a very long view. In fact, Miyata believes USDJPY has been forming a “triangle pattern since June 2015,” and had previously believed that it had been on a declining wave (B), starting at 125.86 in June 2015, which had ended in June 2016 at 99.02 after which time USDJPY entered a rising wave (C) “during which the USD would continue strengthening against the JPY.”

In Monday’s analysis MUMSS revised that view slightly and now feels “the declining wave (B) from June 2015 has not yet ended, and that the USDJPY has in fact been forming a triangle pattern.” In summary Miyata now feels a final wave within wave B “began at 114.73 on 6 November, and the pattern (if valid) is likely in its last stages.” MUMSS believes USDJPY “could enter rising wave (C) on a clear break above 114.73… “ushering in a period of dollar strength and yen weakness. Wave (C) may last until 2023 (8-year cycle from June 2015), and the USD/JPY could target around 150 during that period.” Yes that does read 2023 and it does say USDJPY could target around 150 over that period. It’s for traders to decide if they are on the same “wavelength” as the Tokyo-based firm. After all Elliott Wave Theory is not everyone’s cup of tea. As for MUMSS it does state that a break below 107.32 (seen on September 8) would negate their idea of a new upward C-Wave for USDJPY

Written by Neal Kimberley, External Currency Analyst.