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There’s a lot of consolidation occurring in the currency market.
Many of you have asked for me to write about gold or US crude, and the reason why I haven’t is that they aren’t favorable right now.
Of course, that’s my opinion, but the price action says it all.
I prefer markets that have well-structured chart patterns to give me some clue as to where the price might be going.
Most of the currency pairs I track lack any clear sense of direction at the moment.
However, one pair I am keeping an eye on is USDJPY.
As choppy and indecisive as the price action has been here and elsewhere, I can’t help but feel that the next big moves aren’t far away.
That’s especially true when you consider the amount of Fed speak on this week’s schedule.
The issue with the USDJPY is its conflicting technical patterns.
You may recall the inverse head and shoulders I wrote about several weeks ago back when the pair was bouncing from 106.80.
That structure is technically still intact.
But we also have a rising wedge pattern that hints at exhaustion from buyers.
I wrote about this last week and again over the weekend.
As you can see, the USDJPY has a decision to make.
That said, I do favor the bearish scenario via the rising wedge simply because upward breaks of ascending levels rarely last, in my experience.
Think about if a bearish flag pattern broke to the upside.
Would you trade it?
Probably not. The same goes for a rising wedge like the one below.
That doesn’t mean USDJPY will break lower, though.
There are no guarantees in this business, and my job as a trader is to listen to the market, not try to outsmart it.
With that in mind, it’s going to take a daily close below wedge support near 108.70 to confirm the breakdown.
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That would expose the neckline of the inverse head and shoulders around 107.50 and perhaps the 106.80 horizontal level I mentioned earlier.
Just keep in mind that USDJPY could have other plans.
If the inverse head and shoulders is going to play out, buyers first need to take out the 109.50/60 resistance area.
That would expose the next horizontal level at 110.60.
But as I mentioned above, I’d be careful trying to buy an upside break of an ascending level due to their tendency to form bull traps.
Want to watch the USDJPY video I just released in the member’s area?
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Hello Justin! It’s times like these that we really need to hear from you. The market’s been very indecisive and it’s like no pair seems to be committing to one particular direction. As you say, we’ll soon find out what the market decides so it’s good to sit on the sidelines and wait. Trading at these conditions is just not prudent as the main aim is to preserve capital and wait for the odds to turn in our favor. No pressure. That gives me peace of mind as I wait. Thank you!
Thanks for the excellent information that you given us sir justin.
Looks somewhat similiar on the daily to the setup from 03 Jan, 2019 to the commencement of the selloff on 25 Apr 2019. For a selloff to happen, SPY has to go down. The positive sentiment and hope for a trough in global data (with regards to China and Europe) has been priced in already in my opinion. The U.S. is slowing and will continue to slow so if U.S. data continues to under-perform and Powell stays behind the curve, that could be the catalyst for the sell off. Could be this week (strong C.P.I. and decent retail numbers could keep Powell neutral which the markets won’t like). However, the numbers could be decent enough where the market thinks that global growth is in a moderate recovery period and so the SPY will continue to push up. Or next week with decent PMI numbers (which would obviously lull Powell into thinking U.S. data is on the mend again). Another possibility is that retail sales are quite bad (and with market expectations of no cut in December) the market will sell off into week.
EUR/AUD and GBP/AUD longs look like longer term swing trades based on the fundamentals. With China slowing into next year, NZD and AUD should stay offered (their CB’s are definitely on the dovish side). NZD might do a little better since reflation trades (milk, cattle, etc) are going to continue into next quarter so NZD would stay more bid. AUD/NZD might be a good sell around 1.09/1.10 since that area has long served as a good resistance area. If NZD lowers rates into negative territory over the next few quarters (unlikely), then AUD/NZD short trade would most likely be nullified. A few caveats though. Yield differentials are still decent between EUR and AUD so EUR is only used mostly as a funding currency right now, which means AUD & NZD are still somewhat more attractive. However, that gap is closing. If China starts re-accelerating (unlikely due to dollar shortage/strong dollar), then AUD & NZD will be the beneficiaries. The GBP will definitely shoot up if Boris is re-elected with a majority (which means the Withdrawal Agreement would pass). But how it will react after that to trade negotiations over a multi-year period with the EU is another story. Furthermore, if the BOE cuts rates, then GBP would be somewhat less attractive to investors. But there is definitely more upside to the GBP (and to a lesser extent the EUR) than downside. Sorry for the rant, hehe.
absolutely true, thank you