The USDJPY is printing a potential wedge on the day chart as well as inverted head and shoulder in the 4-hour. It is critical to confirm with break of neckline or breakout of wedge.
Potential reversal patterns for USDJPY
On January 29, 2010, In Technical Studies, By Soh Tiong Hum
On January 27, 2010, In Technical Studies, By David Yew
Today, we shall excite ourselves by looking at one of the most volatile currency pairs, GBP/JPY, which has a daily average fluctuation of about 300 pips.
In addition, we shall see how 3 chart patterns that is very evident on GBP/JPY for trend reversal and trend continuation – namely, rising wedge pattern, pennant and symmetrical triangle pattern.
GBPJPY Weekly Chart with Chart Patterns
As shown on the chart above, the Bearish Trend Reversal started with the rising wedge formation, which later evolves into the famous Head and Shoulder pattern hinting towards a big bearish reversal move underway.
Afterwhich, every subsequent retracement of the downtrend has either a rising wedge pattern or a bear pennant pattern.
Thus, it goes to show that there is a high reliability of trend continuation when either patterns had formed.
As we observed the recent months, that there is a big rising wedge formation which seems to be forming since 2009, and a symmetrical triangle forming shortly.
As price draws nearer to the apex of the symmetrical triangle, a breakout is inevitable. Yet, will it be a another trend continuation or a bullish reversal?
Should it break out of the pattern to the bullish side, then more bullish sentiment will be added to the equation as many traders will be eyeing for trading the breakout.
Likewise for the breakout to the bearish side, whereby more shorts will be added too.
Whichever the breakout is to be, it will likely to be a big move, so it is worth keeping tabs with this volatile pair in the coming future.
On January 27, 2010, In Technical Studies, By David Yew
Today, we are analyzing chart patterns in the Dollar Index (USDX) together with the COT Report in order to finds that may tell us where the dollar is going.
Breakout in weekly chart
In my post Reflection on FX Majors with COT Report, we already know that USDX has recently made a breakout of the falling wedge pattern in the weekly chart (See chart below).
We also see that USDX is trading between a recent Resistance @ 78.82 and Support @ 76.22 and is currently near the resistance level.
USDX Weekly Showing Bullish Reversal Breakout of Falling Wedge
Daily Chart – 1. Bullish Flag Pattern
From the daily chart below that there is a Bullish Flag Pattern, which was formed shortly after the breakout from the falling wedge pattern on the weekly chart.
In addition, the flag was ‘resting’ on the 50 day Moving Average, forming a Higher Low, thereby giving some bullishness to the picture of USDX.
USDX Bullish Flag
On the other hand, some might consider another outlook for the USDX in the manner below.
Daily Chart – 2. Bearish Broadening Top Pattern
USDX Bearish Broadening Top Pattern
As from the chart above, a different way of joining the resistance line gives us a broadening top chart pattern, which might indicate a somewhat bearish view.
The recent shooting star, which happens to be near the previous monthly resistance, adds to the bearish-ness on the current movement. (See chart below)
USDX Bearish Shooting Star Candlestick
There are two pictures now, a Bullish Flag Pattern and a Bearish Broadening Top Pattern.
So how can we resolve this 2 conflicting views? The COT Report comes into the picture.
COT Report Analysis
With reference to the above charts, the bottom panel of the chart maps the Total Open Interest and the Commercial Sentiments for USDX.
We can see that:
- Commercial Sentiments is unwinding their shorts on USDX, which may indicate slightly bullish sentiments.
- The total Open Interest is slightly lower than previous week, which also hints that there is still high interest for USDX, thus, boosting the bullish signal again!
On January 25, 2010, In Technical Studies, By Soh Tiong Hum
The Euro has reached a key retracement level of its 2009 rally. At the moment, this 38.2% level is a support to watch.
EURUSD retraces 38.2% of 2009 movement
2 conditions give us a clue to whether the the Euro will rally from here or continue on its downtrend in the daily chart. A downward trendline now prints its resistance. As long as the trendline is not violated, the EURUSD will continue to retreat against the Dollar.
But there is another level to watch.
1.4216 is December 2009 low. Based on current price levels, 1.4216 will become a resistance and it comes before the downward trendline meaning that bulls and bears will be fighting this level first. If this resistance is breached convincingly in the near future, the technical picture of Euro may change. This outcome will make price movement below 1.4216 a ‘bear trap’ so that a downward wedge with bullish implications will form.
Critical level in Euro decides downtrend or bear trap
On January 21, 2010, In Technical Studies, By David Yew
Chart patterns are commonly found for almost any price charts. It is more visual when view using a line chart than candlesticks or price bar chart.
As each price bar forms, it may give the chartist a perspective in relation to the formations showed by the historical bars.
Today, we shall dissect a 4 Hourly chart of CHFJPY to understand how patterns can form and perhaps to take advantage of the formations for trading.
As shown above, it is evident that CHFJPY has finished a Head and Shoulders Pattern which is a Bearish Reversal of the previous Up trend. The Up trend happens to be at the ‘armpit’ of the Left Shoulder and Price break down the trendline, indicating the Head is formed. With the falling price, buyers wanted for an entry and attempted to push the price higher, thus forming a pullback.
But it goes to show that more are keen to sell than buy, and after several attempts to break above the up trend line, there is a sharp plunge which is forming the Right Shoulder.
On the same chart with the Head and Shoulders pattern, the keener eye might find more patterns within the Head and Shoulders!
- Left Shoulder was a Double Top formation and Price found a support line to bounce off and overcome the top of the Left Shoulder to form a Higher High (Head).
- After the attempt to make the Higher High, a bearish engulfing candlestick pattern formed resulting a possible price fall as seen on the chart.
- A support / resistance line provide another bounce back with price forming a rising wedge pattern, it also an attempt to test the up trendline and to break it to the bullish side. Along with the evening star candlestick formation, the bearish reversal was like a quick runaway to sell down CHFJPY.
- After a break below the support line, it seem to consolidate and wanted to move up above the support line, yet, the failed attempt results another dive for CHFJPY.
It is easy when we analysis charts in hindsight, when the formations were already there. It is a challenge for us to make sense of the charts as the days goes by. But after knowing a possible formation is underway, you can be sure many chartists who see it will want to ride it.
What we see for CHFJPY is on a 4 Hourly chart, which the above patterns were forming as the weeks goes by. It also shows that when the bullish sentiments of the Big Boys faded, the bearish reversal can last for a long time before another big move comes.
On January 20, 2010, In Technical Studies, By David Yew
Yesterday, we saw big moves for all Majors Currencies. Looking at yesterday’s post on USDCHF throwback in day chart; hourly chart expansion gains, there seems to be a correlation of the Dollar Index, commonly known as USDX, with all cross-pairs of the USD.
Let’s have a look at the COT Report posted last Friday, 15 Jan, to see if there is any signs that the big players have left trails.
It can be seen that there was a support for USDX at 74.12, and a Big falling wedge pattern formed since Mar 09 till now.
The breakout from the wedge following with the breakout to above 50 day moving average, suggest that a bullish trend reversal is intact, thus, USDX is likely to trend upwards.
From the COT Indicators, our interest is to look at the Net Position of the Commercial Traders and the Total Open Interest. Commercial Trader are the Big Boys and the Smart Money as discussed in my previous post and thus the Total Open Interest will also reflect largely on their open positions. We see that the Net Position of the Commercials were on the extreme short position seen at the previous week, and they were unwinding their shorts position slowly as from last week. It is the similar pattern last seen in 3rd quarter of 2008, and causing a bull rally on the USDX.
The USDX is an index of Major Currencies and therefore the chart pattern seen on USDX is similar with those pairs with USD as its base currency, eg. USD/CHF, USD/JPY and USD/CAD.
So which will move first? The USDX or the cross pairs in the spot market? I might find an answer to this when somebody can tell me which come first: ‘The chicken or the egg’?
At the end of day, we should be traders first, investor second, and ride on the trend as long as possible.
On January 19, 2010, In Technical Studies, By Soh Tiong Hum
The Swissy did a throwback on the day chart. From the hourly chart, it is clearly expanding after base building. Are dollar gains here to stay? DX chart from Ino.com. The USDJPY is making similar move.
Throwback in Swissy after breakout from downtrend
Beautiful base building in hourly chart
Dollar gains visible in DX
Throwback move is also mirrored in USDJPY while a wedge formation reinforces the view of a possible continuation move.
Throwback and wedge reinforces USDJPY continuation
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