The AUDJPY has been consolidating since late March following an 850 pip slide between January 23 and March 23. At first glance, the last few months of price action looks unruly and even random.
However, that’s rarely the case, particularly for a relatively liquid pair like the AUDJPY.
There are two patterns taking shape here that appeal to me. In fact, the pair has some of the best technicals around at the moment, and that’s saying a lot.
First is the larger descending channel that has developed throughout 2018. The upper level extends from the January 23 high and connects with the recent June 7 high.
At the other end, channel support extends from the November 2017 lows and connects with the March 23 low from this year. It’s an equidistant channel (the levels run parallel), so there’s no need to use free-form trend lines to plot this one on your chart.
The second equidistant channel is a smaller ascending structure. When you zoom out a bit, this channel appears to be a bear flag, which is nothing more than counter-trend consolidation that carves a channel.
So, everything checks out. We have an established downtrend that began in January as well as counter-trend consolidation via the ascending channel in the chart below.
The only thing missing is a daily close (New York 5 pm EST) below ascending channel support. Such a close would signal a breakout and also confirm this bearish continuation pattern.
Should the above scenario play out, the objective for the AUDJPY would be a move to the 76.00 handle.
Yes, that is more than 600 pips below the current price and may sound unrealistic. However, I assure you the same level of doubt existed prior to the recent 850 pip drop that commenced in late January.
But make no mistake, a move of that magnitude will take weeks to play out. In fact, if this descending channel holds up, the pair wouldn’t reach the 76.00 area until sometime in late July.
All of the above, of course, assumes the technicals you see below play out accordingly. If the pair breaks any level on a daily closing basis other than ascending channel support, all bets are off.
I started building a short position during yesterday’s session which I discussed in the Daily Price Action member’s community. I plan to add to the position on a daily close below channel support.
Alternatively, a daily close above descending channel resistance would negate the idea entirely.