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I’m going to begin the day today on the US Dollar versus the Japanese Yen [USDJPY]. Starting here, on the Daily Chart, I’m going to be discussing really three different trends here for this currency pair. If we look here on the longer-term compression, we could see, on the left-hand side of the chart, we can easily see an up trend. During that timeframe, all you really have to do is buy and you were making money as it continued to pressure higher through that time period.
Then, in May, we saw a little bit of a change in this trending pattern. Where easily on the left-hand side was an uptrend, we began some consolidation. Where on the left-hand side we saw higher highs and higher lows, after May we started seeing higher lows, but lower highs, and that’s described or indicated here by this triangle pattern that we see here. I have a longer red trend line on the top, showing you the lower highs, and a blue trend line on the bottom, showing you the rising lows within that triangle pattern.
Let’s go ahead and zoom in now a little bit here on the Daily Chart so we could see some more detail. And of course, over the past five or six days, we’ve seen a challenge of the bottom of that triangle pattern down there towards that bottom longer blue trend line. And as it sat down there, around that purple-shaded area and that blue trend line, for the past few days I’ve been discussing potential support and reversal to go back up and stay within that longer overall reaching triangle pattern. And so far, at least in the current time, that’s exactly what we’ve seen. We’ve seen several days challenging down here into the 97.00 or 96.78/96.80-level down here into that purple-shaded area. You could see it challenging down into there, finding support, unable to break through that blue trend line, and now turning back higher again.
So, over the past several weeks though, of course we have the longer-term triangle pattern, and that’s one trend that we’ve talked about. Second trend I want to talk about is the past several weeks; is this bearish trend, as we fell from the top of the triangle and challenge the bottom of the triangle. So, we’ve been in a down trend as its continued to pressure down here towards the bottom of that larger triangle. If we’re going to see a continuation of that down trend and a continuation of the bearish trend pattern, which again, as I mentioned, a bearish trend has lower lows and lower highs. If we’re going to see a continuation of that, we would expect to see the highs continue to stay lower and under that trend line – the red trend line – and a new low being made, which of course would break underneath that triangle.
So, if the bearish trend – the shorter red trend line – is going to continue, we would expect it to break under that blue trend line. If it cannot do that, then we might look for a change of the trend and the beginnings of a new up trend. So, I’ve also put a shorter blue trend line here, representing the last three days as we’ve seen the rise back into the bearish red trend line. So, what we can expect today is that if it breaks underneath, first off, the short-term blue trend line, we look for a challenge of the longer triangle pattern and possibly a new low to be made for the USDJPY. If it breaks above this red trend line, we could be looking for a change of the trend pattern, which has been bearish and a continuation higher towards the midpoint of the triangle, which would be here into the 98.30-level or all the way back up here into the top, into the 99.00s.
So, definitely some things that we’ll want to take into account as far as trends as we get into the smaller compressions. Let’s go ahead and drop now down to the 4-Hour Chart. And here, on the 4-Hour Chart, we can easily see that we are challenging that midterm – we might call it – bearish red trend line. I’m going to zoom it in just a little bit so we could see the full scope of that trend line. Highest high connecting with the highs within that trend and here, again, today, we are challenging into that bearish red trend line.
The question of course is: are we going to see a continuation of an uptrend or our change in the trend pattern and a turn higher, and a challenge back into higher resistance levels, or is it going to find enough resistance here to turn it back down in the direction of the trend. Well, you really have two options here. Now, of course, if you’re like me and you’ve been buying from down there in the purple zone, whether it’s 97.20 or even into the 97.00-level, as I have been. If you’ve been buying from down here in the purple zone, at this point, I would suggest you protect some of that profit. Bring your stop up a little bit to protect some of that profit, maybe even closing some of it, because we’re obviously challenging into this trend line and it has potential to go back down in the direction of that red trend line.
So that’s one opportunity – protecting profit on any buys. The other opportunity is if you’re looking for a new buy, I don’t think I would buy it right now, but a break open and close, clear body above the 97.80-level or so above the red trend line, above the green-shaded area. A break above it could give you a new buying opportunity as it breaks through the previous high that we could see here and the previous support that we could see here, indicated along that top green-shaded level. If it breaks above there, that gives you a new buying opportunity and you look to challenge all the way back up here to the yellow or possibly all the way up to the blue-shaded area as our next resistance targets.
That’s one possibility. The second possibility is if you think you need to be trading in the direction of the down trend, which is a clear opportunity. If you’re looking to trade in the direction of the down trend, then you’re just about at your very best opportunity to trade there. Your risk in any sells that you take right now would be just above that red trend line because you don’t expect that it will break above that trend line. So, right now, if you’re looking to sell the USDJPY, you’re just about at your very best place to do it. As long as it stays around 97.80/97.90/98.00, then I would expect a fall back down, or at least a temporary bounce back down as it goes back down into the mid to low-97.00s or even down towards that short-term blue bullish trend line that we see here.
Zooming it in. Again, now that we saw the full scope of that red trend line, of course the short blue trend line – the bullish blue trend line that we see here. Any breaks underneath that likely looking for a challenge of the lowest lows and possibly even a continuation of the down trend. So, remember, a down trend has lower highs and lower lows. That’s the red trend line. An up trend has higher highs and higher lows. That’s what we’re beginning to develop with the bullish blue trend line. What we need to see for a continuation higher is a break above this green zone or a continuation into the yellow or blue zone.
If it cannot do that today, a turn back down towards the blue trend line, a break underneath that; we’re back into the purple zone. And of course, as I’ve said over the past several days, a break underneath that purple-shaded area and that blue trend line on the Daily Chart, likely looking for a continuation of the down trend. I’m going to continue to protect profit, looking for the break above this green-shaded area and red trend line for a new surge in the direction of our current momentum. Otherwise, your best opportunities to trade this are a break above the green zone to go higher, or holding here as a potential short-term sell to go back and target back down to the purple-shaded area for the USDJPY today.
