The USD/JPY pair broke out initially during the course of the day on Friday, clearing the downtrend line in the triangle that we have been forming for some time now. With that being the case, it looked as if the markets were ready to go much higher. However, by the time we finished the trading session on Friday, we turned back around to form a massive shooting star. With that being the case, the market fell back into the triangle, essentially telling me that the market isn’t quite ready to break out yet.
The main reason I say yet is that I truly believe that the massive hammer that was formed several weeks ago signals just how difficult it is going to be to break this market down. With that, I think that every time we pullback we will see buyers get involved, at least down to the 118.50 level. Ultimately, I look at pullbacks as buying opportunities but I also recognize that we need to build up momentum in order to go higher.
122
I believe the fact that the shooting star is just below the 122 at its top isn’t much of a surprise. After all, that was an area that I had mentioned previously as being a bit of a resistive barrier. Once we get above there, it’s very likely that the market should then go to the 125 handle. I think that’s eventually what happens, especially considering that the Federal Reserve will have to raise interest rates someday, and the Japanese central bank certainly looks to be light years away from doing the same. It’s the simple interest-rate differential that normally pushes the markets, and I think eventually we got back to that rationale in this market. However, I recognize that until we break above the top of the shooting star and essentially the 122 handle, you will have to be very careful and keep your stops relatively tight.
