Japanese Yen, AUD/JPY, EUR/JPY, GBP/JPY, IGCS – Talking Points:
- Time-cycle analysis suggests that the Japanese Yen could slide significantly lower against its major counterparts.
- Inverse Head and Shoulders pattern hints at extended gains for AUD/JPY.
- EUR/JPY rates challenging long-term trend resistance.
- GBP/JPY poised to push to multi-year highs.
Long-term cycle analysis suggests that the haven-associated Japanese Yen is at risk of a prolonged period of weakness against its major counterparts. Here are the key levels to watch for AUD/JPY, EUR/JPY and GBP/JPY in the coming weeks.
JPY Index* Monthly Chart – Extended Losses on the Cards
JPY Index* monthly chart created using Tradingview
*Averages USD/JPY, AUD/JPY, EUR/JPY, GBP/JPY
As noted in previous reports, the Yen largely adheres to what appears to be an 8-year rotation, with significant bottoms in the JPY index set in late 1998, early 2007 and late 2015.
After bottoming out against its major counterparts, JPY then seems to outperform early in the cycle with key highs set roughly two years after the 1998 and 2007 lows.
The formation of a Double Top reversal pattern seemed to signal the end of the currency’s bullish run in June 2012, and looks strikingly similar to the formation taking shape within the current cycle.
With that in mind, the convincing break below the uptrend extending from the 2015 low, combined with the RSI breaking to its lowest levels since 2017, could be indicative of a cyclical downturn for JPY.
Cycle analysis suggesting the Yen could fall as much as 30% from current levels before bottoming out in 2024.
AUD/JPY Weekly Chart – Inverse Head & Shoulders Points to Further Upside
AUD/JPY weekly chart created using Tradingview
AUD/JPY seems poised to move significantly higher in the medium to long term, as price breaches the neckline of an inverse Head and Shoulders bottom and slices through the sentiment-defining 200-week moving average (78.99).
The development of the RSI and MACD are also indicative of swelling bullish momentum, as both oscillators storm to their highest respective levels since 2013.
A weekly close above 82.20 would probably open the door for buyers to challenge the 61.8% Fibonacci expansion (84.70). Clearing that brings the 2018 high (89.07) into the crosshairs.
The inverse Head & Shoulders implied measured move suggesting that the exchange rate could climb an additional 14% from current levels to challenge psychological resistance at 94.00.
The IG Client Sentiment Report shows 36.15% of traders are net-long with the ratio of traders short to long at 1.77 to 1. The number of traders net-long is 4.23% higher than yesterday and 5.29% lower from last week, while the number of traders net-short is 1.42% lower than yesterday and 10.77% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/JPY prices may continue to rise.
Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current AUD/JPY price trend may soon reverse lower despite the fact traders remain net-short.
EUR/JPY Weekly Chart – Constructively Perched Above 200-MA
EUR/JPY weekly chart created using Tradingview
The outlook for EUR/JPY rates remains skewed to the upside as price surges above the 2019 high (127.50) and tracks firmly above all six moving averages.
However, the premature formation of a Shooting Star candle at the downtrend extending from the 2008 high hints at exhaustion in the recent uptrend.
Nevertheless, gaining a firm foothold above 128.50 on a weekly close basis would probably signal the resumption of the primary uptrend and pave the way for a challenge of the September 2018 high (133.13).
Alternatively, sliding back below the 8-EMA (126.76) could trigger a short-term pullback to the sentiment-defining 200-MA (125.62).
The IG Client Sentiment Report shows 49.57% of traders are net-long with the ratio of traders short to long at 1.02 to 1. The number of traders net-long is 44.81% higher than yesterday and 34.23% higher from last week, while the number of traders net-short is 0.84% lower than yesterday and 22.32% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.
Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/JPY price trend may soon reverse lower despite the fact traders remain net-short.
GBP/JPY Weekly Chart – 2015 Trend Break Suggests Further Gain at Hand
GBP/JPY weekly chart created using Tradingview
GBP/JPY also looks set to continue climbing higher in the coming months, as prices surges above 200-MA (142.13) and convincingly breaks the downtrend extending from the 2015 highs.
With the RSI surging into overbought territory for the first time in six years, and the MACD tracking firmly in positive territory, the path of least resistance seems higher.
A break above the 2019 high (148.87) would likely intensify buying pressure and carve a path to probe the psychologically imposing 150.00 mark.
However, if 148.00 holds firm, sellers could drive the exchange rate back towards former support-turned resistance at the 2020 high (144.96).
The IG Client Sentiment Report shows 29.31% of traders are net-long with the ratio of traders short to long at 2.41 to 1. The number of traders net-long is 2.73% higher than yesterday and 18.12% lower from last week, while the number of traders net-short is 1.27% lower than yesterday and 9.66% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise.
Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/JPY trading bias.
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss
