(Bloomberg) — The yen has been battered in recent weeks, but technical data suggests it may be on the way to recovery.

Bloomberg’s Most Read

The Japanese currency could rebound to 116 to the dollar in the coming months after slipping as low as 125.09 on Monday, the lowest in nearly seven years, according to analysis by Bloomberg.

The yen lost around 6% in March, trailing all of its Group of 10 peers, as the Bank of Japan’s determination to maintain policy accommodation contrasted with the hawkish bias adopted by most of its major peers. The weaker currency is a boon for exporters although some analysts warn that the fallout from slowing economic growth could outweigh the benefits.

“It’s been an eye-catching sell off from 125 where a significant supply zone from the pre-GFC and 2015 highs exist,” said Sejul Gokal, Founder and Chief Technical Strategist at GO-TechniKAL Insight Ltd. A weekly close below 122 would put further pressure on the dollar, he said.

Here are four charts to show why the yen can rise.

Test neckline:

The surge in USD/JPY has taken the pair to the neckline of an “inverted head and shoulders” formation. This neckline offers very strong resistance in the 124.14-125.86 area and has the potential to push the Yen up to 116, where a key Fibonacci level is located.

The DeMARK sequential indicator – designed to time market reversals – signals that a security’s prevailing trend is likely to be interrupted by either a reversal or a break when momentum reaches a point of exhaustion on a impression of 13, as it is now. Notice how the yen bull market ended in late 2011, shortly after a 13 appeared.

Shooting star:

USD/JPY’s retracement from above 125 this week has formed a so-called “Shooting Star” candlestick pattern, the long upper shadow of which suggests likely exhaustion from the recent push to the top of a channel bullish.

hollow cycles

A popular model for analyzing cycles in price troughs and peaks is the so-called “Cycles Hurst” mechanism. A study of price movements since 2013 shows the presence of an almost 80-week low-to-low cycle in the pair. The next cycle low expires in mid to late June 2022, so until then it is reasonable to expect the Dollar to remain under pressure against the 125-126 area.

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP