Price Action Setups – USDJPY Flirting with Disaster

by Justin Bennett  · 

May 15, 2014

by Justin Bennett  · 

May 15, 2014

by Justin Bennett  · 

May 15, 2014

A lot to cover today, so let’s get right to it…

I’ve been posting about this USDJPY wedge for the past week. Under normal circumstances, a wedge coming off a strong uptrend such as this would be considered bullish and therefore favor a break to the upside.

However the fact that price action is back at the bottom of this wedge for a fifth time time leads me to believe that the bottom may be about to give way to lower prices. It’s not so much the number of touches at the bottom that leads me to believe this, it’s the number of touches on the bottom compared to the top.

When the market hugs the bottom of a wedge like this, things don’t usually end well for the bulls…

usdjpy daily chart price action

I received several emails today asking about the inside bar that formed on USDCHF yesterday. Most wanted to know if it was a valid setup. The answer was two-fold…

Yes it was a valid inside bar, however whether it was a valid inside bar setup was in question. That’s because of the key level just above at .892. I mentioned that if price could close above this key level today, then we may have some room to the upside. The market had its own agenda, answering back with a convincing bearish pin bar.

Before everyone runs off to put on a trade, I do want to point out that this market recently broke the downtrend that’s been in place since July of 2013. This isn’t to say that today’s pin bar is invalidated because of it, but rather to proceed with extra caution if you do choose to trade this particular pin bar setup.

In cases like this I always like to play things a little safer than usual. This goes for the amount I risk, where I enter the trade as well as how I trail my stop loss. Which by the way, the new lesson on Forex stop loss strategies will be out shortly. (shameless plug)

NOTE: I would cover the EURUSD pin bar, however at this point in time the inverse correlation between EURUSD and USDCHF is so strong that it’s essentially an exact inverse of USDCHF. 

usdchf daily chart

Here is a larger view of the USDCHF downtrend that’s been in place since last year…

usdchf price action downtrend break

EURNZD has been interesting to watch lately. Ever since the May 8th pin bar, the pair has been falling right into place. I mentioned yesterday the possibility of a false break of the 1.584 level, and today we saw the market dip lower followed by a strong push back above this level.

Although this pair saw a close above this key level, it wasn’t an overly convincing close. If price action had closed near the top of today’s range, it would help solidify a push higher tomorrow.

At this point I think we’ll see at least a modest push higher from here. It’s important to keep in mind, however, that the EURNZD is still in a strong downtrend, so any moves higher are against the overall market flow.

eurnzd forex daily chart

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