As we approach the US election, volatility across market segments is likely to continue to ramp up. And the latest weekend gaps on several currency pairs including the EURJPY below are a direct reflection of the rampant speculation surrounding this week’s decision.
With this in mind, it’s important to take extra precaution including being overly diligent about the positions you put on.
At the same time, this increase in volatility can create favorable opportunities for those who practice patience and discipline. The EURJPY wedge pattern below is an excellent example.
The price structure began forming shortly after the June 24th Brexit and now has three points on each side, making it a well-defined formation.
Now comes the part about patience and discipline.
Typically, a narrowing wedge that forms after a two-year decline acts as a bearish continuation pattern. This alone means that I’ll only entertain a break of support.
If resistance gives way and I miss a bullish move, so be it. Another opportunity will be along shortly.
The other side of the coin is a matter of timing in the face of this week’s US election. The EURJPY is vulnerable to substantial fluctuations leading up to and following the event. For this reason, I’ll wait for the dust to settle before considering a selling opportunity should one materialize.
A break of wedge support would likely encounter bids at the July lows near 110.80 followed by the post-Brexit low which varies by broker.
But at 760 pips, the height of the wedge pattern below puts the measured objective at 105.30/40, which corresponds with the low from 2010.
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