USD/JPY: Trade Triangle Lines

Our previous analysis last Monday ended with the following predictions, as applicable to the price action that has occurred since then:

1. A bullish bias, with the price reaching 98.50 before it will drop below 96.93
2. The higher trend lines on both sides of the triangle should be more reliable for containing the price

This was an excellent forecast, correctly calling last week’s long move up to 98.50 and the break of the lower, inner triangular trend line. The level of 96.93 was not tested again.

Let's start looking to predict what might happen over the coming days by taking a look at the monthly chart first:



The triangular consolidation since May has continued, with the last month printing a pin bar/doji rejecting the lower triangular trend line. This is a slightly bullish sign, but overall more a sign of consolidation, as it has not yet been broken to the upside.

Let’s take a look at the weekly chart:



Here we can see some bullish signs:

1. Last week broke and closed, very close to its high, above the inner higher triangular trend line, marked at (1). 2. The last four weeks have produced a bullish 4-candle candlestick pattern, with the bullish reversal bars marked at (2) and (3) overlapping with their bullish real bodies. 3. The higher lower triangular trend line has held.

Finally, let’s turn to the daily chart to look for some more clues:



A few bullish signs are also showing here. As we identified last week, the previous Thursday and Friday were very significant, producing an inside candle followed immediately by a pin candle marked at (1) off the more reliable, long-term lower triangle trend line. This was the start of the bullish move. After a couple of good up days, we see the price falter at the inner higher triangular trend line with the inside candle marked at (2), before breaking up and producing a very bullish outside bullish reversal candle the next day, making a weekly high just below the 99.00 level. Although we have good bullish momentum and things look pretty bullish on all time frames generally, we have to be cautious as to the uptrend’s further progress, because we are now close to the strong resistance zone from 99.00 to 99.28, confluent with the higher upper triangle trend line.

As such the recommendations we can make today are as follows:

1. Short touch trade off the upper triangle trend line.
2. Long touch trade from the beginning of tonight’s Tokyo session at any first retest of the broken inner upper triangle trend line.
3. If there is a successful breakout past 99.28 that holds for a few hours at least, long touch trade on any retest of the higher upper triangle trend line. Target then 100.00 to 100.40 level.
4. Long touch trade on any test of the inner (higher) lower triangle trend line.