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Could USD/JPY and Gold Fall Together?

Could USD/JPY and Gold Fall Together?

Jamie Saettele, CMT, Sr. Technical Strategist

After numerous false starts on the downside, beginning with the 2/25 collapse, USDJPY traders are conditioned to buy the dip. Eventually, this mentality will aid in accelerating a nasty decline.

USDJPY

Weekly

Could_USDJPY_and_Gold_Fall_Together_body_usdjpy.png, Could USD/JPY and Gold Fall Together?

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Are you new to FX or curious about your trading IQ?

FOREX Analysis: In the most recent weekly, I noted that “the USDJPY has responded to the 50% retracement of the decline from the 2007 high.” The USDJPY responded to the same level this week. Only in a paradoxical world like markets would the USDJPY reverse before 100.00 and the major 101.26/67 area. Those levels are still possible of course but the close below the diagonal support line is an early sign that something else may be going on. After numerous false starts on the downside, beginning with the 2/25 collapse, traders are conditioned to buy the dip. Eventually, this mentality will aid in accelerating a nasty decline, but within a multiyear uptrend. So is this the beginning of the ‘nasty decline’? I think so but I know that I don’t want to be long when it happens. Consider also that a seasonally weak period for equities is upon us.

There are a lot of levels to get through before one can be confident that a larger drop is underway. A drop below the 4/16 low at 95.65 and line parallel to the one that extends off of the 3/12 and 4/11 highs would be concrete evidence that something bigger is brewing on the downside. Candlestick traders will notice a bearish engulfing pattern on the weekly. The action is telling. The previous week’s close was the highest in almost exactly 3 years. Price opened above last week’s high and closed below last week’s open. Although far too early for most to consider, it’s worth noting the line that extends off of the 1998 and 2002 tops. That line could once again come into play, this time as support, as it did in 2007.

The USDOLLAR (2 charts down), which I term USDJPY light, is also showing signs of cracking. Price closed beneath the extremely well-defined Elliott channel. The high (on the 24th) crossed through the line that extends off of the 2011 (October 11) and 2012 (June 1) highs.

FOREX Trading Strategy: I’ll be focusing on chart levels below if reached. The underside of the broken diagonal support line is now estimated resistance. That line is at about 98.65 on Monday. 98.45-99.00 is viewed as resistance. It’s probably too early to consider an automated breakout strategy. Markets tend to trade sharply in both directions before the ‘straight line’ move gets underway.

USDJPY

Daily

Could_USDJPY_and_Gold_Fall_Together_body_usdjpy_1.png, Could USD/JPY and Gold Fall Together?

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Are you new to FX or curious about your trading IQ?

USDOLLAR

Weekly

Could_USDJPY_and_Gold_Fall_Together_body_usdollar.png, Could USD/JPY and Gold Fall Together?

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Are you new to FX or curious about your trading IQ?

Gold

Daily

Could_USDJPY_and_Gold_Fall_Together_body_gold.png, Could USD/JPY and Gold Fall Together?

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Are you new to FX or curious about your trading IQ?

FOREXAnalysis: After nearly retracing the entire 4/15 decline, gold reversed at the downward sloping line that connects the record high and February 2012 high (2/29/12 was a $105 down day high to low). That line provided support in late August 2012 (8/31/12 was $47 up day high to low) as well. If gold is headed lower over the next few weeks then it needs to stay below this line. Strength above would shift focus to the December 2011 low at 1522.

FOREX Trading Strategy: Short against 1500, for a new low, specifically the 2011 low at 1307.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

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Jamie is the author of Sentiment in the Forex Market.

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

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