USD/JPY Forecast: Monthly chart looks super bullish

Omkar Godbole FXStreet Contributor

The Dollar-Yen pair is more likely to end the current month above the upward sloping monthly 50-MA level of 110.96. The moving average is seen sloping upwards to 111.35-40 on Monday.

Monthly chart

The effects of the golden crossover - bullish 50-MA & 200-MA crossover - usually kick in with a time lag: The golden cross was confirmed in Q3, 2016. The bullish follow-through usually happens with a lag. A golden cross on the monthly timeframe initially works as a contrarian indicator. The latest example being USD/CAD, which suffered a massive sell-off from the May high of 1.3793 following the confirmation of the golden cross on the monthly chart.

One can draw parallels between the golden cross and the 'J-curve theory' in economics, which says that the benefits [drop in trade deficit or rise in surplus] of a sharp depreciation in the currency kick in with a time lag. The UK is still yet to see the J-curve effect despite a massive GBP drop 12 months ago. However, the golden cross could into play now... after a time lag of almost one year.

Higher lows in line with the upward sloping 50-MA - As seen on the chart above, the dips below the upward sloping monthly 50-MA in Q3, 2016 were short-lived. The pair left a higher low around 99.00 levels in June 2016 and rose to 118.66 levels in Dec 2016. The subsequent sell-off ran out of steam around 108.00 levels, which is evident from the sharp rally to 113.26 levels this month. The sharp recovery from the low of 107.32 has left another higher low on the chart.

Textbook Inverse Head and Shoulders Reversal - The right shoulder is in progress. The neckline resistance is seen around 126.30 levels.

View:

Going forward, the dips below the monthly 50-MA are likely to be short-lived. 108.00 is the new base.
The spot is likely to take out the falling trend-line hurdle over the next three months and begin the journey towards the inverse head-and-shoulders neckline resistance of 126.30.
Only a close would abort a monthly bullish outlook.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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