Historic Rally Set to Take Place in USDJPY, Nikkei?
Below I plot USDJPY on a monthly closing basis dating back to the 1950s. Beyond the fact that the resistance is nearly 50 years old, it begins when Nixon abandons the gold standard in 1971 and runs atop the 1985 high that coincided with the Plaza Accord and the subsequent large drop in USD against its major trading partners. That it’s critical swing resistance is an understatement. USDJPY actually cleared this resistance in 2014-2015 following the large multi-year rally that began in late 2012 when Abe and the BofJ began their aggressive push to weaken JPY and stimulate the Japanese economy. Since then, the pair has merely consolidated atop this former resistance.
Drilling into the cross on a more granular HLC basis, look at the same resistance below. Coiled. Very coiled. And little room left in the pattern. Assessing this set-up reminds me that in a recent post I highlighted gold in Yen terms, noting the cross was challenging 1980’s highs and that any future upside, which the pattern suggested was likely, would probably involve gold going higher, not Yen weakness. However, doesn’t the set-up in USDJPY immediately above and below urge one to reconsider this notion?
Recall our 30-yr secular bear market analog in the Nikkei. It suggests that sometime within the next year the index will clear a huge multi-decade basing pattern and quickly reclaim its former 1989 all-time highs, a move likely taking no longer than a year, per a predecessor 30-yr secular bear on the index that lasted from 1920-1950, with the index quickly doubling from 1950-1951 after it cleared three decades of former resistance. Silver did the same thing 2010-2011. Below I plot the Nikkei since 1989 and compare to the average of these two precedent secular bears of similar duration.
As I’ve been saying for some time, the analog above suggests the Nikkei move doesn’t begin until month ~365 vs. the current 351, placing the launch higher in ~Jun-2019, far away from today. But to the extent that the Nikkei began to soar in late 2012 as the Yen began its plunge vs. USD and the same cross seems, at least to me, to be very, very close to a large move higher yet again, is it possible the envisioned rally in the index could begin sooner?
I’ve botched enough trades to know that putting too much emphasis on an analog with respect to specifics on when and where price should make a decisive move is a fool’s errand. It’s begging for clairvoyance in prognostication that is simply unattainable. Pattern formation is a far better tool to sharpen the dull edge of an analog when endeavoring for such specifics.
In that regard, I think it’s important to highlight the similarities in the overall secular cycle between the Nikkei since 1989 and silver from 1980-2010 as it was nearing its break-out point for a 2x move in less than a year before peaking, yet again at its 1980 high, in Apr-2011. In the top panes below I plot those over-arching cycles and in the bottom panes I narrow in on the final phase of silver and what I believe is the same in the Nikkei today with insets. As you can see, the Nikkei continues to press long-term resistance formed off its highs of the past few years in an overall ascending triangle pattern, just as silver was doing in 2010. Based on the pattern, I suspect there’s a few more months of digestion left, perhaps with a move back up to resistance in the near-term before summer failure, and a 2H19 break-out.
If any of the above occurs with respect to USDJPY or the Nikkei, far from gold “soaring” as I suggested in this global macro round-up post, quite the opposite is likely to occur given how tightly the plots of the ratio b/t the SPX & Nikkei, gold and JPYUSD have been since 2012.
Further, if I’m correct on this, it has implications for the broad, trade-weighted DXY, a topic I’ll cover in my next post. Despite incessantly suggesting broad-DXY weakness on this site for much of the past year, I’m increasingly of the opinion the opposite is about to occur.