The US Dollar is rallying – against the Japanese Yen, that is – and has gained more than seven-per-cent since the September lows, as shown in Chart 1 below:

Chart 1

click chart for more detail
click to enlarge

During this period the weekly swing chart has made higher swing tops and higher swing bottoms, giving us a confirmed up trend, as displayed in Chart 2 below:

Chart 2

click chart for more detail
click to enlarge

For more information on the September low and how it came together, Safety in the Market Platinum students can refer to my article ‘Master Time Cycles on the US Dollar/Yen’ in the Platinum area of the website.

I have heard several market commentators talking about the US Dollar gaining in value and while these charts back that viewpoint, but there is one small problem with this assessment – it is too short-term.

David Bowden, a successful market forecaster who studied and applied the techniques of Wall Street legend W.D. Gann, preferred to analyse at least five-years market action before putting together a forecast. Bowden said he wanted a daily chart going back at least one-year and a weekly chart going back at least five-years.

Let’s take a look at a bit more market data on the US Dollar/Yen.

In Chart 3 below illustrates the daily chart for the US Dollar/Yen going back twelve-months:

Chart 3

click chart for more detail
click to enlarge

Even though the US Dollar is higher against the Yen than it was in November last year, it has stayed within a fairly narrow trading range of 800 points since February this year. The recent rally has all been contained within this trading range.

Chart 4 below shows a weekly chart of the US Dollar/Yen for a little over five-years:

Chart 4

click chart for more detail
click to enlarge

The last five-years have been extremely bearish for the US Dollar against the Japanese Yen. This helps to put the current rally into perspective.

While the October, 2011 All-Time-Low is holding, the Dollar certainly hasn’t made a strong, sustained bull market rally from this low.

The question is whether the current rally really is the start of a new bull market or whether it is simply another bear market rally. My money is on the latter.

I will be watching the weekly swing chart for a pullback (see Chart 1) before another upswing around 3.50 to 4.00. After this, there is a good chance the bear market rally will be completed, and the next phase of the bear market will commence.

I will be discussing this setup (and others) in the currency markets in detail at Safety in the Market’s final Gann Mastery Workshops for 2012 in Perth and Sydney. Contact the office on 1800 622 858 or email acountmanager@safetyinthe to book your place.

Be Prepared!

Mathew Barnes