September 28, 2009

US Dollar versus Japanese Yen

In recent weeks, all eyes have been on the US Dollar. Is the end near for the US Dollar, and can we draw any clues from the Japanese Yen?

The chart above is a multiple time horizon study of the US Dollar versus the Japanese Yen spot foreign currency market (USDJPY). From left to right, a 4-hour, daily and weekly bar chart is plotted. Each time horizon plots a 50 and 200 period moving average crossover system, plus a 14 period RSI, with min, max and intermediate bullish and bearish support and resistance zone levels in blue and red respectively.

In multiple time horizon work, it is important to draw distinctions in behavior. Individually, the pivot dates and prices are plotted on each chart, with red arrows in the daily and weekly chart matching the highest high pivot on the 4-hour chart. Lastly, a time and price grid is plotted on the daily chart only, calculated from the swing low on 17 Dec 08 at 87.093.

Isolating each time horizon, it is clear the currency pair is respecting the 50 period moving average across the board. Each window also demonstrates the pair is in a bearish trading range, holding beneath the 65 RSI resistance level. What's different is the daily chart's recent departure from a tight overlay regarding the 50 and 200 period moving averages. This is indicative of a market in consolidation, and while the price action broke away in late Aug 09, the 200 period average is starting to shallow.

I've noted previously that the 78 level in the US Dollar Index represented critical support. The 88.575 level in the USDJPY marries nicely to that price point. Technicians should watch this level for clues as to the longer-term direction of the US Dollar, and any break below would signal further collapse in the USDJPY. Looking at the weekly chart above, the Dec 08 to Jan 09 lows represented the 161.80% extended retracement of the longer-term swing from the Dec 05 low to the Jun 07 high, so any move lower would spell trouble for the US Dollar.

Having failed to base on or about 17 Sep 09, the next date window is on or about 01 Nov 09 near a target of 86.575. Any acceleration below that level bodes poorly for the US Dollar, and signals a furthering flight to the Japanese Yen.

Jeffery E. Lay, CMT
President
Talon Eight, LLC

Disclaimer: This post is intended solely to disseminate information, and is not, and shall not be construed to constitute financial, investment or other similar advice. All posted material should be independently verified for accuracy and current applicability. Readers of this post are referred to the Risk Disclosure for further information.

[Return to Analysis]