Exactly one week ago I mentioned the break of channel support on USDJPY just ahead of the August 17th FOMC meeting minutes. Due to how far the pair had dropped, we were waiting for a pullback to new resistance near the 101.00 handle to secure a more favorable entry.
Just 24 hours after releasing that commentary, the pair successfully retested the 101.00 area. In fact, the high of that 4-hour candle was 101.15. Following the retest, USDJPY gave up an additional 140 pips within a matter of hours.
However, since the low at 99.63, the US dollar pair has been carving out higher lows on an intraday basis. Despite these higher lows, the bearish bias is still intact as prices remain well below former channel support, which is now close to 101.20.
While the price action over the last week may look choppy and altogether meaningless at first glance, there is something more to it. If we draw a trend line starting from the August 16th low we can see that it clearly outlines two other swing lows from the 18th and 23rd of this month.
The top of the pattern, on the other hand, isn’t as well defined. Still, the 101.15 session high does provide a valid starting point for what could be the top of the wedge.
As you may well know, a wedge often acts as a continuation pattern. Given the downtrend that’s been in place since the weekly head and shoulders broke down back in February, it signals the potential for an eventual move lower.
One event that could spark some volatility for the US dollar is this Friday’s speech by Janet Yellen in Jackson Hole, which begins at 10 am EST.
But while many market participants eagerly await her speech for hints about the Fed’s next move, I’m doubtful as to the details she’ll be willing to share. After all, her last few events outside of the FOMC haven’t provided many clues for traders to hang their hat on.
Either way, a pattern such as this requires patience. But given the bearish momentum and the resistance level just above at 101.20, I’ll only be interested in a move lower. Key support comes in at the post-Brexit low followed by the October 2013 low at 96.57.
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