USDJPY: H&S Potential:
Updated
Overview: The last few weeks we have seen wide ranges in the USDDJPY pair which has ultimately followed a respected channel going back to December. Recently, price action violated this channel and has failed to hold anything substantial. This can be attributed to news.
Recent Price action: Recent price action looks to be in a distribution phase: Double top (arguably a triple top), wipsaw movements, and no clear respect for holding support levels after making gains, etc. Some may call this stop hunting, either way is to to be on guard for what is to happen next.
Technically Speaking:Textbook H&S: H&S is always thrown out there by every trader anytime something similar develops, however this would be textbook material. Left shoulder, a head distinctly defined, a right shoulder with a lower high, and most importantly a break of a clear trendline and a retest.
SentimentAs traders we have to define trends whether that be immediate, intermediate, and long term trends. In the immediate we have a falling wedge in between two near-term key-support/resistance levels. In the midst of hard news the last few days, we can expect to see more emotional exaggerations in price swings. DJT has already caused alarm with traders; mentioning weaker dollar, not talking about policies, mentioning policies that are likely to be inflationary and boost deficit spending. The more he disappoints the market, we may see longer and more exaggerated moves similar to when traders were in high anticipation of rate hikes with JY.
Conclusion - We are still in a downtrending wedge in the USDJPY pair. Although we violated the line recently, we have failed to make a significant move above it. The most recent price action would confirm the bearish bias with distribution patterns in addition to a H&S setup. These areas are best left for short-swing moves and should not yet be considered for a significant long position. Additionally, it would be wise not to let your portfolio suffer on the emotional waves of foreign countries digesting a Trump presidency or from DJT's tweets / comments.
Recent Price action: Recent price action looks to be in a distribution phase: Double top (arguably a triple top), wipsaw movements, and no clear respect for holding support levels after making gains, etc. Some may call this stop hunting, either way is to to be on guard for what is to happen next.
Technically Speaking:Textbook H&S: H&S is always thrown out there by every trader anytime something similar develops, however this would be textbook material. Left shoulder, a head distinctly defined, a right shoulder with a lower high, and most importantly a break of a clear trendline and a retest.
- not only did we break the rising trendline support, we also broke key support over the last few days
- After testing a past support level "S1", price spiked back up to the neckline and has not been able to penetrate it
SentimentAs traders we have to define trends whether that be immediate, intermediate, and long term trends. In the immediate we have a falling wedge in between two near-term key-support/resistance levels. In the midst of hard news the last few days, we can expect to see more emotional exaggerations in price swings. DJT has already caused alarm with traders; mentioning weaker dollar, not talking about policies, mentioning policies that are likely to be inflationary and boost deficit spending. The more he disappoints the market, we may see longer and more exaggerated moves similar to when traders were in high anticipation of rate hikes with JY.
Conclusion - We are still in a downtrending wedge in the USDJPY pair. Although we violated the line recently, we have failed to make a significant move above it. The most recent price action would confirm the bearish bias with distribution patterns in addition to a H&S setup. These areas are best left for short-swing moves and should not yet be considered for a significant long position. Additionally, it would be wise not to let your portfolio suffer on the emotional waves of foreign countries digesting a Trump presidency or from DJT's tweets / comments.
Trade closed: target reached
Target reached, sooner than expected. Top in USDJPY confirmed the neckline break, and followed loosely within the estimated target range (in orange box) before breaking down. As mentioned, this is a big week for investors to gain footing and other economic events leading into next week. I do expect a technical bounce in the near future, but one should stay vigilant and manage risk/profits accordingly
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