Saturday, October 01, 2016

Trading with Trendlines: Another Look at USD/JPY

I have written several times about the USD/JPY pair, but so far my analysis was related to the Elliott Wave Theory.

Today I am offering a different look at this pair, and this time we will draw trendlines to analyze the future scenarios.

On the weekly time frame we can see a perfect price channel in which the pair has moved to the downside from 1st November 2015 to 19th June 2016 and it has dropped with 2440 pips.
In June this year the pair visibly stopped dropping and started moving sideways, bouncing off a new support trendline.

Right now the pair has reached the crossing of the two trendlines – the resistance one (in red) and the support one (in lime colour) which could be considered a signal that there will be a breakout of one of them. In case the pair breaks out above the red trendline, we could see it rising and forming a new high for the first time in the past eighteen months.  A breakout below the green  trendline would likely lead to a new drop.

On the daily time frame we can see that at the moment the pair is stubbornly trying to break above the resistance trendline, but there is no attempt to break below the support one.

If we examine the bars on the same time frame, we will see that there are two morning star bars, which are a clear signal for a new move to the upside. More importantly, they are formed at an important trendline. On the weekly time frame the last bar is also a morning star.

The conclusion is obvious. My personal expectation is that there will be a breakout to the upside, which could signal the beginning of a trend reversal.