The dollar/yen technical dilemma
There are several forces that are pulling and pushing on the USDJPY as is evidenced by the daily chart attached. A large head and shoulders pattern, in pink, has been slowly developing since the breakout of the up channel, in white, some weeks ago. But in the past 10 days a smaller inverse head and shoulders pattern is now evident, in blue. It is important to note that the neckline of the inverse H&S, in orange, is also a trendline slanting down from a previous resistance, obviously still remaining very important and respected. So how does one trade all of this? Thursday and Friday there is important economic data expected: the EUR and GBP interest rate decisions on Thursday and then the NFP unemployment data on Friday. Everyone is waiting for this news before making any big moves. This is evident in this sort of price action: making chart patterns within chart patterns, creating a technical dilemma. So I for one will wait for price to tell me the direction and then pounce on it, because this sort of ranging and pattern making always preceeds a big move. In case this pair heads higher after the news, 99.50 is the level to watch. Price breaking 99.50 and then retesting it for a buy entry, confirms the inverse head and shoulder and also fails the larger pink head and shoulders at the same time, since a move above the right shoulder is a pattern failure. Target for longs is then 103.50 area. If, however, price decides to head downward after the news, 95.60 is the neckline to break for continued fall. A break, retest, and subsequent fall would then target 89.70 region. The important thing about trading these types of chart patterns is to wait until the break happens then look for a retest to confirm the move. Fakeouts are likely. Good trading, and be careful, use your stops.


Jennifer Shotts

Casey Stubbs has been trading for 14 years. He started trading in the stock market and moved to Forex.
Richard draws from his extensive experience trading to write insightful trading articles for both fundamental and technical analysis.
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