Yen – and A Radical Theory about News

The theartofchart.net website has just had a major upgrade and this is my first blog post on the new format. Member content pages have now been entirely separated from the blog pages so this blog will now just have free to all content, and Stan and I are planning to do two or three posts a week between us in addition to the trader education free webinar info etc, looking at a variety of instruments of our choice.

My choice for my first of these blog posts is a look at the Yen  –  where it is now, the path by which it arrived here, and where it is likely to go over coming weeks and months. I’m planning a series of these over coming weeks looking at all the major USD currency pairs on multiple timeframes. As with the bond markets, patterns can take decades to form on some of these currencies and that is very true of the Yen, so I’ll start with the bigger picture view and then drill down to the present day.

One thing to note here is that I am charting this using JPYUSD, which is unusual as most Yen chartists use USDJPY instead. They are the same chart inverted, but obviously the numbers are different, so you need to bear that in mind. Why do I chart Yen this way? Mainly because I chart all the USD currency pairs this way. All of the other currency pairs, EURUSD, GBPUSD, AUDUSD, NZDUSD, GBPUSD, CADUSD are usually presented this way, with Yen to my eye being an odd exception to the rule. My apologies if this causes you any confusion.

The bigger picture on the Yen starts in 1985, with the Plaza Accord at which it was agreed by the governments of the US, Japan, UK, France and West Germany that the central banks of these countries would intervene to bring down the value of USD against the Yen and the Deutschmark, and that was the start of an uptrend on JPYUSD that would see it almost quadruple in value relative to USD over the next 26 years until Yen topped out in 2011. That uptrend formed a huge rising wedge that broke down in 2014 and the current move, in my view, is a likely test of broken support on that rising wedge. JPYUSD monthly chart:

The last upswing within that huge rising wedge from 1985 was within a smaller rising wedge from 2007 that I’d been watching for years as Yen went higher. After the high in 2011 an H&S formed, and on 14th November 2012 I called it short at www.channelsatpatterns.com in a post which you can see here.

Very gratifyingly JPYUSD then dropped like a stone from the 125.90 broken wedge support retest at which I called the short, reaching the 107 H&S target within three months, and then the full retracement of the rising wedge back to 80.55 by mid 2015.

JPYUSD patterns beautifully and the decline from the high was in a perfect falling wedge. I was looking at the setup in Chart Chat on 16th August 2015, and you can see that clip below. The clip is about 6.5 minutes long:

What I was talking about on the clip was the likely strong rally that was coming on the Yen.  The obvious targets were the retest of broken rising wedge support, now in the 97 area, and then the 38.2% or 50% fib retracement targets at 99.6 and 105.8 respectively. Both of those fib targets are big levels and I’d expect one or the other to hold. Technically Yen could go higher to the 61.8% fib retracement or even the full retracement of the falling wedge back at the 2011 high, but Japan is such a complete fiscal and policy train wreck that even reaching the 50% fib retrace target at 105.8 might be impossibly ambitious. The obvious larger trend should be down, though obviously I’d be looking for pattern and divergence confirmation for any reversal as and when this likely dead cat bounce comes to an end. I’m not seeing what I would expect to see then here yet.

The wedge broke up not long after that Chart Chat, an IHS formed, and then that IHS broke up. Here’s what that looked like on the weekly chart, and the weekly RSI 14 signal made target with the IHS a couple of weeks ago. JPYUSD weekly chart:

So what now? Well the obvious targets haven’t yet been reached, though the retest of the broken rising wedge support isn’t far away. The weekly RSI 14 buy signal has made target, as has the monthly RSI 5 buy signal, but the monthly RSI 14 buy signal, the first in the last forty years, has not yet made target, and I’m expecting it to. There’s no high quality negative RSI divergence on the daily chart but …… JPYUSD daily chart:

……. when I drill down to the hourly chart a different picture emerges. On the 60min chart there is high quality negative divergence, and an RSI 5 sell signal had already fixed, with an RSI 14 sell signal, that was close to fixing when I capped this chart earlier today, having now fixed as well. Short term at least JPYUSD looks ready to turn back down.

The pattern structure for this move up from the lows is a decent quality rising wedge, and JPYUSD overthrew wedge resistance slightly at the high today. This is a strong setup to at least retest rising wedge support, currently in the 90 area, and if wedge support breaks then I’d be looking for a retracement to one of the main fib targets which are the 38.2% fib retrace in the 89.2 area, the 50% fib in the 87.6 area or the 61.8% fib in the 86 area. These are calculated on the basis of the current swing high, so if JPYUSD goes higher then obviously those targets would move accordingly. JPYUSD 60min chart:

One thing to note about these moves on Yen over the years is that while I’ve read quite a bit about Japan as a very interesting case study of an utter economic disaster area, I don’t really follow news there on a short term basis. When I called the Yen short in November 2012 I wasn’t following the Abenomics policies to which the hard breakdown in the Yen was then attributed. When I was calling Yen long last year I wasn’t paying much attention to the news either, and I have read with interest since that this rally in the Yen is due to the weakening of the Nikkei, as long Nikkei and short Yen pair trades have been unwound. These were pure technical calls based only on the charts, as is the smaller rising wedge here. If that decline happens then doubtless that will be attributed to some fundamental cause, and I’ll be waiting with interest to see what that might be.

This is something I’ve seen before on other currencies and instruments, and it suggests that one of two strange options should be true here. The first is that the patterns on Yen and these other instruments somehow anticipate the news. If so this would be significant evidence of precognition / predestination, and by extension magic. The other option is that the news is a great deal less important in determining these price moves than everyone seems to believe, and that the industry of talking heads weaving the threads of price moves and news together as cause and effect every day are just rationalising, in the tradition of the prehistoric greeks thousands of years ago, who were so profoundly ignorant of the biology of procreation that they generated a whole mythology of women being made pregnant by divine spirits of earth,air and water.

I’ll let you guess which option I favor.  🙂

Stan and I are doing our monthly free to all public Chart Chat this Sunday at 4pm EST and if you enjoy good TA, or are at all interested in the more likely price directions on a wide range of trading instruments then you can sign up for that here. Space will be limited so register soon if you want to attend, and we will be taking questions, though obviously there will only be limited time available to answer them. We also do a couple of public trader education webinars on Thursdays every month, and if you are interested in any of those feel free to sign up for those too.