USDJPY continues to look strong within this three-year uptrend that is now responsible for a massive 5,000 pip gain since the 2011 lows.
More recently, the pair has been consolidating after putting in a new thirteen-year high on June 5th. However yesterday’s session appears to have put an end to the consolidation and may have set the pair up for a retest of the multi-year high at 125.85.
Keep in mind that we have non-farm payrolls tomorrow at 8:30am EST, which is always a highly volatile event for the US dollar. This alone increases the risk of trading USDJPY over the next 24 hours.
However yesterday’s inside bar does present a compelling opportunity to buy on a break of the August 5th high at 125.00. On the other hand, if NFPs disappoint, traders can watch for a buying opportunity on a retest of 124.40 as new support.
Additionally, there is a strong chance that the pattern that has been unfolding since mid June is that of an inverse head and shoulders pattern. While formations such as this usually occur after a downtrend and signal a reversal, they can also signal a possible trend continuation after a corrective move such as this.
If this pattern plays out over the coming days and weeks, it could produce a move as high as 128.40, which is the measured objective of the pattern.
Summary: Opportunity to play a break of the August 5th high at 125.00. Alternatively, a retest of 124.40 would have traders watching for bullish price action on a retest as new support. Key resistance comes in at 125.85.
The last time we covered EURCAD it was forming a wedge pattern on the 4 hour time frame. The wedge came after the pair broke to the upside off of a three-month inverse head and shoulders pattern. That particular setup was good for 360 pips as the pair reached the measured objective in short order.
Fast forward to today and the pair is carving out yet another wedge pattern. The question now becomes, is this another continuation pattern or is the pair signaling exhaustion? For the answer we turn to simple price action.
Like the pattern that formed in late July, the current wedge is well-represented by both support and resistance. This gives us two precise levels from which we can watch for a breakout opportunity.
However as is the case with any trending market, I will only be interested in a break in the direction of the prevailing trend. In the case of EURCAD this would be a break to the upside.
As for targets, we have the 61.8 Fibonacci level at 1.4610. Beyond that would target the 1.4730 handle, a level that acted as support and resistance between December of 2013 and August of 2014.
Of course the recent high and measured objective at 1.4490 is also expected to act as resistance. That said, a break of wedge resistance would likely produce enough bullish momentum to overcome the 1.4490 handle.
Summary: Watch for a buying opportunity on a 4 hour close above wedge resistance. Key resistance above 1.4490 comes in at 1.4610 and 1.4730.