In this article I’d like to take a walk down memory lane on the US Dollar, specifically the US Dollar against the Japanese Yen. (Code: FXUSJY in ProfitSource software.) The history of this market is shown in Chart 1, below:
click to enlarge
The devaluation of the U.S. Dollar over the past five-years may seem extreme but it is nothing compared to the bear market of the 1980s.
Chart 1 suggests that for now at least, the US Dollar is closer to a bottom than a top.
Traders and investors dream of getting into a market right at the bottom. They say: “if only I had bought the Australian Dollars back at 50 cents, and held them all the way up to a dollar, I’d be rich!”
I think we will see a low and a rally in late January or early February in the US Dollar/Japanese Yen. If we are looking for a low, it makes sense to study previous lows to see how they played out.
In Chart 2 below I have circled the five major market lows over the past three decades, as well as the current market action.
click to enlarge
Each of these lows was followed by a substantial rally in the US Dollar against the Japanese Yen. Can you see any similarities? Take a moment and study them. If you are using ProfitSource or HUBB Investor software, I would encourage you to open this chart, examine the lows and make your own conclusions.
Only one of the lows is a ‘spike’ low. The other four are all Double Bottom / Accumulation setups, which all took around a year to unfold.
If you look over the entire history of the chart, you will note that, for the most part, the U.S. Dollar was trending (either upwards or downwards) against the Yen. It doesn’t normally spend a whole lot of time standing still. When it does stay around the same level for a sustained period, a strong move usually follows.
If we see a Double Bottom (or even a slightly lower bottom) form on this market over the next few weeks, I would expect a strong rally. The strength of the rally, as always, will help us to determine whether we are looking at a new bull market, or just another rally into a lower top before more pain for the greenback.