Can the Dollar Yen Finally See the End of its Decline?

Key Points:

• Moving to challenge bearish trend line.

• Descending triangle completing.

• Overbought stochastic readings.

Currently, two strong surges fuelled by US fundamentals are testing just how high the persistently bearish Dollar Yen will tolerate being pushed. As a result, the pair could find itself reversing strongly over the next few days if it has yet another failed attempt to break the long-term trend line. However, unlike previous attempts, the slew of US results on offer this week could finally see the pair muster the requisite momentum to escape its prodigious decline. Additionally, even if it does reverse, the USDJPY is now running out of room to maneuverer which could have broader implications.

First and foremost, as is demonstrated below, the Dollar Yen has remained in decline for a protracted period of time. The consistency of the descent is quite remarkable and the shear rigidity of the long-term bearish trend line is certainly impressive. Even in the absence of a number of other technical indicators, the fact that the pair is moving to challenge this line would be reason enough to expect a reversal. However, fortunately for us, the overbought stochastic reading and the presence of the 50.0% Fibonacci retracement give weight to the argument for an imminent about face.

After reversing, the USDJPY should perform much in the same fashion as it has done on previous occasions and return to test the defended 100.00 mark. Subsequently, we can expect to see the pair continue its overall bearish trend and complete a consolidation phase which, at present, looks to be taking the form of a descending triangle. What is interesting here is that, after completing the triangle, the Yen will be looking to finally breakout. However, in what direction this breakout occurs in is up for debate given the seemingly unbreakable bearish trend line and the market’s ardent conviction to prevent the 100.00 support from being broken.

This being said, if the strength of the recent US fundamental results are anything to go by, the slew of data this week could see an upside breakout occur around the 103.47 level. Specifically, the amount of employment data that is due over the next few days certainly has the ability to see a large enough swell in USD sentiment to force a rally. Such a spike for the pair could finally see it distance itself from the pivotal 100.00 handle which will assuredly be met with a sigh of relief from the BoJ. Consequently, keep a close watch on the US results moving forward as they could finally end this nine month downtrend.

Ultimately, the Yen is reaching an interesting point where either the market will be forced to abandon its defence of the 100.00 handle, or the currency will finally end its relentless trend. Whatever the outcome, the pair will definitely be worth keeping an eye on moving ahead, as will the US employment results.