USD/JPY Forecast: Ready for the ‘golden cross’, has long-term uptrend resumed?

August proved to a be a good month for the Dollar-Yen pair as financial markets were pretty much dull, while July/August disappointment from Bank of Japan (BOJ) and Japanese government was overshadowed by hawkish Yellen at the Jackson Hole event. The net result was the spot closed higher at 103.31 after having clocked a monthly low of 99.52 levels.

Monthly chart screams trend reversal

Let us first note that back in the early 80s, USD/JPY pair traded close to 280, while in the 70s it actually clocked a high of around 306.00. What it means is that the spot has been in a long-term downtrend and the rally from 2011 low has not even retracted 23.6% of the entire fall from 306.19 (Dec 1975 high) to 75.56 (Oct 2011 low).

Keeping in mind these facts if we take note of the bullish developments on the monthly chart, it appears the pair is set to rally once again. Following bullish developments could be noted on the monthly chart –

• Repeated rebound from long-term falling trend line coming from Aug 1998 and June 2007 high
• Bullish hammer candlestick following a rebound from long-term falling trend line and
• A possible bullish crossover; also known as the ‘golden cross’ between 50-MA and 200-MA

The fact that the pair repeatedly sought support around long-term falling trend line in last three months and ended August with a bullish hammer candle signals the ‘golden cross’ is very much possible. Both averages have almost converged.

Furthermore, the golden cross on many occasions has been a laggard indicator. However, in this case as noted above, we are nowhere near record highs. In fact, the spot has not even retracted 23.6% of the multi decade downtrend which means the golden cross is likely to work.

In the short-run the immediate upside is likely to be capped around 105.82 (200-DMA). A positive September/October period would confirm the rising trend from 2011 lows is still intact. Only a month end close below the long-term falling trend line would signal bullish invalidation.

Moreover, the monthly chart could pointing to a drastic action from Bank of Japan (BOJ)/Japanese government and/or faster than expected tightening in the US.

AUD/USD Forecast: Watch out for rejection at 0.7550

Daily chart

• Aussie’s drop to a one-month low of 0.7490 yesterday followed by a minor rebound and positive day end close back above 100-DMA suggests a short-term loss of momentum is likely to keep the currency pair stuck in a range of 100-DMA level of 0.7494 and rising trend line (drawn from June 24 low and July 27 low) level of 0.7550.
• A rejection either at 0.7526 (38.2% of 0.7148-0.7760) or 0.7550 (trend line hurdle) if followed by a break below 100-DMA level of 0.7494 would signal fresh sell-off towards to July 27 low of 0.7420.

NZD/USD Forecast: Awaits breakout

Daily chart

• The spot finds itself restricted to a narrow trading range defined by rising channel resistance and 38.2% Fibo support of 0.7205.
• The rising channel resistance is seen today around 0.7264 levels. Thus the trading range is 0.7205-0.7264.
• An upside break on the daily chart would open doors for a revisit to strong resistance zone of 0.72-0.7250.
• On the lower side, daily close below 0.7205 would simply suggest continuation of the retreat from last Friday’s high of 0.7380. The immediate support at 0.7140 (Aug 3 low) could be put to test in this case.