A fairly uneventful session has left AUDJPY coiling even tighter following the 650-pip rally that commenced on March 1st. I commented on the pair shortly after it began its ascent, noting the two channels I was keeping an eye on at the time. You can read that commentary here.
The larger of the two structures shown in that commentary is still intact. The upper boundary of that channel now resides near the 87.00 handle (shown in the chart below).
Since topping out on March 14th, the pair has consolidated into what could become one of two very different patterns, neither of which has confirmed just yet.
On the one hand, the recent lower high on the 17th of March hints at the idea that a 4-hour head and shoulders reversal is in the works. In order for this scenario to play out, we would need to see AUDJPY close below trend line support near 84.50, which could accelerate losses toward 83.30 and possibly 82.00.
Alternatively, if the pair challenges the March 17th high at 85.85 over the coming session, the seven-day formation would quickly turn into a wedge pattern that could ultimately challenge the aforementioned channel resistance near 87.00.
However, given the close proximity to a sixteen-month resistance level, I would prefer to see the bearish scenario play out. This would offer a more favorable setup from a risk to reward perspective.