As pointed out by a member of Daily Price Action, CHFJPY has been carving out a bear flag pattern that began earlier this month and could be nearing completion.
This comes after a year of wild swings for the pair, including the massive 2,300 pip rally on January 15th after a surprise decision was made by the SNB. However since that time the bears have been in control, pushing the pair 1,200 pips lower from the double top that formed in June.
This is not the pair’s first rodeo when it comes to continuation patterns. A similar bear flag pattern began forming in early August and later confirmed on a break of support on August 24th, another day we will all remember for quite some time.
The retest of former support as new resistance on August 25th was good for a 600 pip move. But this price structure is not just for admiring the profit that could have been. It gives us something of value for the current pattern – a well defined high that we can use to calculate a measured objective.
In this case, that final objective comes in at 118.30, an area that lines up with several highs from 2013 and 2014.
So what is the game plan from here?
As we all know, a continuation pattern is only confirmed on a close beyond support or resistance in the direction of the prevailing trend. In the case of CHFJPY, that would be a 4 hour close below channel support.
Because volatility is a common characteristic of the yen crosses, especially true in recent weeks, it may be prudent to wait for a retest of the support level once broken before considering an entry.
However if the pair chooses a different path and closes above channel resistance instead, the current price structure as a continuation pattern would be negated.
Summary: Wait for a selling opportunity on a 4 hour close below channel support. Key support comes in at 121.90 and 119.90 with a measured objective at 118.30. Alternatively, a close above channel resistance would negate the bearish bias and turn our attention higher.