Long term low for U.S. Dollar versus Japanese Yen

23 April

The U.S. Dollar versus Japanese Yen (USDJPY) has made a long term low, if my moving average crossover method is to be believed. On my methods page, I explain that I’m looking for series that have spent a long time (preferably four years) on one side of two moving averages and have now crossed them, leading to a moving average crossover.

U.S. Dollar versus Japanese Yen (USDJPY)

The chart has 30 and 40 week moving averages. The shorter average was below the longer from September 2007 and the crossover has just occurred. The MACD had a bullish divergence at the low in Autumn 2011 but that was not the first divergence on the way down. Divergences can only be an alert, we still have to wait for the price to move.

Following a sharp rally in February and March, price has pulled back to the averages. These averages may now appear to be support but things are rarely so tidy (just look at the downtrend). Moving averages don’t make anything happen, they just follow price and I now only use them to identify long term changes such as this.

The next chart shows that when the rally started in February, the 30 week Bollinger Bands were historically tight. Similar degrees of band contraction produced moves in 1991, 1995, 2000 and 2003.

I usually look for contraction of the 40 week Bollinger Bands on stocks but the most relevant parameters vary by instrument. For USDJPY, 30 weeks bands have a good track record of producing quick breakouts following band contractions. Quick breakouts are preferable to bands that meander along before expanding.

My former colleague Ron William has discussed long term cycles for USDJPY, which you can see here.