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The USDJPY closed above the 109.00 handle on Tuesday.
It’s a key level I’ve discussed several times since the pair was bouncing from 106.80 support in early October.
However, I have some concerns about the current rally.
The first is what just occurred on the weekly time frame.
Notice how the USDJPY price action last week engulfed the range of the previous one.
It wasn’t the most bearish close, but it still qualifies as a potentially bearish signal, in my opinion.
Tuesday’s session came close to taking out the high of that weekly candle but fell short by four pips.
You may think the weekly candle above is enough to short the USDJPY.
I would have to disagree.
A candlestick pattern alone is meaningless without considering other technical factors, especially those that could foil your plan.
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More on that in a moment.
The second issue I have with the current rally is a pattern that has developed on the daily time frame.
I pointed this out last week, but the rising wedge that extends from the year-to-date low in August hints at exhaustion from buyers.
However, it’s going to take a daily close below 108.50 to confirm the pattern.
Such a close would open the door to the 106.80 key level with a break there exposing the 105.00 region.
Just keep in mind that there are no guarantees.
The weekly and daily patterns I just discussed are meaningless if the market doesn’t respect them.
This game is about listening to the market, not trying to outsmart it.
With that in mind, I’m not interested in selling the USDJPY until the pair closes below wedge support near 108.50.
I’m also not interested in buying the pair until we see a close above the wedge top near 109.50 followed by constructive price action.
I dislike the idea of buying bullish breakouts of ascending levels due to their tendency to become bull traps.
That means I would need to see more from buyers in the event of a topside break.
All in all, though, the USDJPY is one for the watchlist until we see a break below the 108.50 area or above the 109.50 region.