FXY Japanese Yen Weekly and Daily Charts Oversold Falling Wedges Positive Divergence Gap Fill

The weakening yen is all the rage over the last 24 hours.  The weaker yen sends the dollar/yen currency pair higher punching through the psychological 100 level, not seen since October 2008, and then the 101 level overnight.  The current asset relationship is weaker yen = higher dollar/yen = higher equity markets and stronger yen = lower dollar/yen = lower equity markets. The central bankers control the global markets these days. The charts clearly show the collapse of the yen starting late last year. The BOJ hit the afterburners on their new easing programs in February-March which creates the additional leg lower in the yen and is the main contributor to the higher U.S. stock market.

The FXY weekly shows the head and shoulders pattern where the neckline failed at 115. The head at 130 sets up a target at 100 which occurred over the last month so the H&S pattern is satisfied. Note the gap on the weekly chart from late 2008 that has set the yen on an island for the last 4-1/2 years. An island reversal may occur with a sharp drop under 95 and spike higher in dollar/yen or the gap will simply be filled. The green falling wedge, oversold stochastics and positive divergence all indicate a recovery on tap for the yen, at a minimum some sideways basing action to absorb all the downside energy. The daily chart is positively diverged as well with this new price low. Note the volume (thin circle) which hints at capitulation selling where anyone holding on to the yen has now given up and thrown in the towel believing that the yen will continue heading lower with reckless abandon. Yup, typically the opposite is more likely.

The bludgeoning of the yen has been one heck of a move but the positive divergence, falling wedges and oversold conditions need to send price higher. So although lower levels in the yen may occur in the future weeks and months, especially with the FXY 90 support so close now, the charts hint that the yen beating is very far along and the yen should recover, at a minimum, move sideways for the nearer term. A strengthening yen, due to the positive divergence, would create selling in U.S. equities. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.