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Dueling Technical Patterns in the Yen

Dueling Technical Patterns in the Yen

2014-06-20 13:00:00
Kristian Kerr, Sr. Currency Strategist
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Talking Points

  • Important patterns on the daily point to important move on the horizon
  • 102.80 and 101.60 remain important pivots

Unfamiliar with Gann Square Root Relationships? Learn more about them HERE.

Waiting for a meaningful directional trend to develop in USD/JPY over the past few months has been like waiting for Godot. However unlike the play, this situation will eventually resolve itself and probably soon. We say this because of the recent price action. Over the past few weeks two pretty clear technical patterns have emerged that are often precursors to more important directional moves. The first one is an inverse head & shoulders pattern going back to early April. It is a reversal pattern that calls for higher prices if triggered. The neckline or trigger point of this formation comes into play around 102.80. Classic technical analysis projects a move from this pattern could go all the way back to the year’s highs. If we zoom in further, however, we can see another clear pattern only this one has a negative interpretation as it is a head & shoulders topping pattern which would call for lower prices if triggered. The neckline of this pattern is near 101.60 and a break would project a move well under the year’s low of 100.75. If the year’s low were to break meaningfully we imagine downside momentum would pick up markedly given the slumber the exchange rate has been in over the past few months.

We expect one of these patterns will get triggered within the next few days given the lack of “real estate” between the two necklines. When one of these patterns does trigger it should (assuming no false break) usher in a period of strong trend and hopefully good trading in USD/JPY.

For purposes of simplicity we will just focus on how we might look to take advantage of a downside break should it occur first.

To receive other reports from this author via e-mail, sign up to Kristian’s e-mail distribution list via this link.

USD/JPY Daily Chart: June 20, 2014

Dueling Technical Patterns in the Yen

Charts Created using Marketscope – Prepared by Kristian Kerr

Key Event Risk in the Sessions Ahead:

Dueling Technical Patterns in the Yen

LEVELS TO WATCH

Resistance: 102.35 (Gann), 102.80 (MTD high)

Support: 101.60 (Swing low), 101.35 (Gann)

Strategy: Sell USD/JPY on a break

Entry: Sell USD/JPY on a break of 101.55

Stop: 102.40

Target: 100.10

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter at@KKerrFX.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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