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AUDJPY – Bear Flag or Bear Trap?

AUDJPY – Bear Flag or Bear Trap?

Paul Robinson, Strategist

Talking Points:

  • Bearish pattern, but…..
  • Sitting on 3-month trend-line
  • Clear levels define entry long and short

AUDJPY, it’s make or break time. Just as AUDUSD is sitting near critical support (92.00), so is AUDJPY (94.50/94.00). Assuming JPY continues its sideways meander, the Australian Dollar could drive the next move in AUD/JPY trading. In any event, the short-term pattern on the AUD/JPY chart looks like a bear flag. A bear flag is a consolidation pattern which resumes the trend of the move prior to its formation.

However, the upward trend-line could keep it supported and a bullish breakout might be in the cards if the trend-line continues to provide support, springing a trap on bears. On the other hand, as I often say, “trend-lines are to be trusted until broken”. If a break below the trend line does occur, the move could be quite explosive as the intermediate-term trend shifts lower.

AUDJPY – Daily

AUDJPY – Bear Flag or Bear Trap?

I am looking for one of the two scenarios below to play out fairly soon, maybe as soon as tomorrow, when the U.S. Employment data is released:

Breakdown – If price closes below the bottom of the bear flag (94.50) and below the rising trend-line (94) on a 4hr or daily basis, I will look to establish a short position. If this happens then I will look for a move below 92 to take place.

Breakout (Trap) – If price closes above the top of the bear flag (95.35), then bullish momentum should come in for a retest of the previous highs at 96.50.

4 HR Chart – A Closer look at the bear flag

AUDJPY – Bear Flag or Bear Trap?

Charts created by Paul Robinson using MarketScope 2.0.

In conclusion, I have more interest in selling a breakdown than buying a move higher given the clean bearish formation at trend support. With that in mind, though, we still need to see further confirmation either way before action is warranted. At this juncture, it is still speculation as to which direction will prevail.

-- Written by Paul Robinson of FXSimplified.com

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

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