Key Points:
- Long-term trend line should remain in place.
- Parabolic SAR remains bullish.
- Consolidation now looks likely.
The dollar-yen should continue to consolidate moving forward which means further upsides could be on offer. Specifically, we have a bit of a loose pennant shaping up that should cap downside risk and a number of other technical readings are signalling that bullish momentum is tentatively returning.
As is shown below, the long-term uptrend seems to be intact and this is now forming the lower constraint of a pennant pattern. Confirming that this consolidation phase is beginning is the current ADX reading which has finally slid below 20 and, therefore, heralds an end to the recent slew of losses. As a result of this pattern taking hold, we should see buying pressure begin to build moving ahead and this could see the pair as high as the 115 handle once again.
Indeed, we are already seeing a number of technical readings come forward which support some near-term bullishness for the dollar-yen. Firstly, and probably most obviously, the 100 day moving average has been propping up the pair and doesn’t look as though it is going to relent anytime soon. Additionally, the parabolic SAR bias is bullish which will be helping to recruit buyers moving ahead.
One of the less obvious signals of ongoing bullishness is the MACD oscillator. Specifically, the signal line crossover that occurred as the pair challenged the 100 day EMA is indicative of a change in momentum. This would typically infer that we are in little danger of the recent downtrend firing up again which significantly increases upside potential.
As a result of all these technical readings, we should see the USD/JPY ascend up to around the 115.16 level. Here, the 50.0% Fibonacci level will likely cap upsides and it could even encourage another reversal. However, it will pay to take another look at the technical bias as the pair approaches this point as we could instead see a breakout from the pennant and a subsequent uptrend.
Ultimately, we can’t ignore the fundamental side of things and should keep half an eye on the economic news feed moving forward. The only real news items to be aware of are on the US side of the equation and, of these results, only the Unemployment Claims and the Final Michigan Consumer Sentiment figures are worth monitoring closely. However, do watch out for any bombshells that could be dropped in Lockhart’s scheduled remarks, despite there only being a rather slim chance of him deviating from the Fed’s script.