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- USD/JPY wave patterns suggest rally in the cards

- Stock market declines could trigger USD run higher

- Final leg of wave pattern may put USD/JPY rate at 140

The Dollar is set to begin a turbo-charged rally higher over the next year, according to the founder of trading signals provider Bullwaves, who says the likely upturn in the greenback will have its roots in stock market declines.

Most economists and currency analysts say the Dollar is overvalued and that it will weaken over the long-term. Enda Glynn, founder of Bullwaves and an advocate of Elliott Wave theory, has a different view.

Glynn says the U.S. stock market rally of 2019 is built on foundations of sand that will soon give way to a major market correction.

Those anticipated declines in the U.S. stock market could mean the greenback embarks upon a steep climb before any fundamental weakness tipped by other analysts eventually takes hold.

“I am expecting a very large rally in the Dollar to materialise over the next - probably already begin - but definitely to accelerate over the next year,” Glynn says, in a blog post. “I’m tracking a three wave pattern to the upside. Long-term, I suppose, you could call this a correction to the upside. And I think we are yet to see the full virility of wave C to the upside. We will probably see that really get into its own as the next phase of the bear market (in stocks) plays out.”

The anticipated rally will support all Dollar exchange rates over the coming year but it will be most pronounced in the USD/JPY rate, which is the most sensitive to movements in the stock market.

The S&P 500 entered bear market territory in December 2018 after falling more than 20% from earlier highs during the final quarter.

Above: USD/JPY rate shown at weekly intervals. Source: Bullwaves.

Though primarily an Elliott Wave analyst who derives forecasts from technical analysis of the charts, Glynn says the Dollar will rise because it's the world's safe-haven currency. He projects the next stock market downturn will lead to global turmoil and a bout of risk aversion in other markets.

Daily charts show the USD/JPY rate completing a complex triangle pattern this year. The triangle is the middle "B wave" within a broader ABC correction that will soon see a "C wave" drive the exchange rate higher, potentially all the way up to 140, Glynn says. This would be the final part of a three-wave correction that began at 2011's lows.

Above: USD/JPY rate shown at daily intervals.

Most triangles are composed of 5 internal waves, which Elliot Wave analysts label A-E. The flash crash lows that appeared on charts at the beginning of January 2019 completed the final E-wave of the triangle.

Glynn's eventual target of 145-150 is highly speculative and a very long-term multi-year forecast. A move above 115.00 would provide confirmation of a breakout from the triangle and mark the start of a the envisaged rally higher.

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