4 Signs the Dollar/Yen Momentum Could Slow

The U.S. dollar has been surging since the election, but the currency may be set to cool in the near term

Senior Vice President of Research
Nov 22, 2016 at 3:33 PM
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Following Donald Trump's election win earlier this month, the U.S. dollar has surged alongside the broader domestic equity market. In fact, the U.S. Dollar Index (DXY) is still perched atop the closely watched $100 level. However, a closer look suggests the Dollar/Yen momentum could slow down in the days ahead. Below are four things we're watching on this forex front.

Dollar Yen Overbought Nov 22 __

1. For starters, the Dollar/Yen has officially been overbought, according to its 14-day Relative Strength Index (RSI) of 80.3. As you can see from the orange portion of the chart above, this reading has not spent much time above 70 in recent years. This alone suggests the currency may be due for a breather.

2. But the 320-day moving average is also bearing down at the moment. This trendline marked a peak earlier in the year. Looking back to July 2014, a consolidation into this trendline preceded the next leg higher from the round $100 area, into June 2015.  

3. Also looming overhead is the $113.04 region, which is roughly 10% below the June 2015 peak.

4. On a year-over-year basis, the Dollar/Yen is now approaching the round negative 10% area, another potential technical roadblock.

While the aforementioned levels may not suggest widespread selling at this juncture, they could suggest the momentum off the lows will slow as profit-takers offset a recent rush of buyers. Downside could be limited, however, with the round $110 level  -- 10% above the recent low -- just below.

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