The US Dollar has been threatening to rally against the Japanese Yen since the November 2010 low. However, every attempt by the bulls to push the currency higher has hit a brick wall.
The March 17 low after the Japanese earthquake looked like a good place for the US Dollar/Yen to commence a new bull run but the run up has only lasted three weeks – not enough to overbalance time.
Since then the Dollar/Yen has encountered resistance at around the 82 level. In Chart 1 below, we can see that the US Dollar/Yen (FXUSJY in ProfitSource) broke through the 100% milestone of the main bear market range, then rallied slightly, only to find that this 82.28 level acting as resistance.
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At the same time, the Dollar was encountering resistance around old trend lines from the past six months, as shown in Chart 2 below.
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The brief move to the upside out of the March lows looks all but over so the next move for the US Dollar/Yen will likely be to the downside.
The question is: How long can this bear market go? WD Gann said that markets can go a lot further than we think and, as such, are never too low to sell.
However, they will not fall in a straight line – they will make a series of lower tops and lower bottoms.
The big test will be if and when the Dollar breaks through the March low of 77.16.
If it makes a “false break” of this low and then rallies strongly, perhaps from around the 76.20 level, that could be the signal the second section of the bear market is complete and a bear market rally could commence.
But if it keeps going the next level to watch would be the 150% milestone of the first major range down, or around 68 Yen. To put this in perspective, in the mid-1980s, one US Dollar bought 260 Yen.
We are approaching an interesting milestone in terms of price on the US Dollar/Yen. There are some fascinating things coming together in terms of Time Analysis in the next month or so, which I will be covering in detail at the upcoming 3-Day Gann Jump Start Workshop in Perth next week and at our 3-Day Gann Mastery Workshop in Melbourne at the end of June.
If Time Analysis is not a part of your trading toolkit, this is an excellent opportunity to add it to your arsenal.