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I’m going to begin the day today on the US Dollar versus the Japanese Yen [USDJPY]. I’ve started here, on the Daily Chart, and zoomed further out so we can see some history here for this currency pair. On the far left-hand side, we can easily see that this pair, over a long period of time, starting in December of 2012, began an uptrend, as is pushed all the way up into the highest highs, into the 103.78-level at the top of the chart.
Well, since then, back in May of 2013, we’ve been in a bit of consolidation. We can define this as a symmetrical triangle with falling highs along the red trend line. We could see the highs continually getting lower within this triangle pattern, and rising lows along the blue trend line, where the lows are getting continually higher along this blue trend line. So, within this pattern, we could see lower highs and higher lows getting tighter and tighter within this symmetrical triangle pattern.
Well, the best opportunities to trade within a triangle pattern are as it approaches the extremes of that triangle, towards the blue trend line or towards the bearish red trend line, because that minimizes your risk and maximizes the potential gain or profit, trading in the opposing direction of the trend line. Now, of course, at some point in time, we will likely expect that we’ll see a breakout of this triangle, either above the red trend line or below the blue trend line and a continuation of the trend, as it continues to either push higher, as it breaks out to the top side of the triangle, or pushes lower, as it breaks to the bottom side of the triangle.
Now let’s zoom in here on the Daily Chart just to get a little closer view of this. And as we can see, over the past couple of weeks, we saw a challenge and test down here into the bottom of the triangle, the purple-shaded area, and the blue trend line, down closer towards the 97.0-level, down at the bottom of the triangle. Several traders, including myself, taking buys as it approached the bottom of that triangle and, of course, profits were made as it pushed towards the top of the triangle and now settled out under the red trend line.
The question, of course, now is: are we going to see a continuation as it breaks out of the triangle or is it simply going to do what it’s done for the past several months and turn around and go right back down. And we can’t know that for sure, but there are some clues that we could look for to help us identify the best opportunities for this pair. Well, first thing, if we look at the bottom of the chart, we could see that the trend bar for the Forex Black Book is bright green, which gives us some clue that we see the bear or the bulls, or the buyers are in control of this currency pair, which could lead us to believe we might look for a breakout to the top side of the triangle.
The other thing we can do is look at the shorter-term trend. Of course the triangle pattern is from the Daily Chart, but we can also look at shorter-term trends, and I’ve placed a shorter blue trend line here, showing the direction – the current direction – the currency pair is going in. And as long as it stays above that blue trend line, I think there is potential for us to breakout above the red trend line and continue that bullish pressure higher.
Now let’s take that information down to the 4-Hour Chart here on the USDJPY. Now, over the past several hours – now, this is the 4-Hour Chart, so several hours worth of time here – holding inside this blue-shaded area. The bottom of the blue-shaded area is 98.55. The top of the blue-shaded area is 98.75. So, between .55 and .75, we’ve been bouncing around for the past several hours. Of course a break above the blue-shaded area and a break above 98.75, we’ll likely look for the continuation as it pressures towards the top of the triangle and into the 99.0-level.
On the other side, if it breaks down underneath the blue-shaded area and underneath the 98.55-level, likely looking for it to continue back down to 98.30 or even lower, as it pushes back down towards the bottom of the longer-term daily triangle. With the green trend bar with the Forex Black Book, we’ll also look for a new green arrow. If we see a new bullish green arrow, that would also imply that we’re looking for a breakout to continue higher.
Let me squeeze it in here a little bit so we could see the full scope of this range here. The red trend line, the blue trend line. So, for the day today here, on the USDJPY, there’s two things to watch for. Of course a breakout above the blue-shaded area – 98.75. We likely at least look for the push back towards the 99.0-level and the top of the triangle. If it breaks out above the triangle and above the purple-shaded area, which is around the 99.30-level, we’ll likely look for a continuation higher for the USDJPY.
Now, the other side of the story of course is the breakout to the bottom side. If it gets underneath the blue-shaded area and underneath the blue trend line and the 98.55-level, likely looking for a turnaround, a push back down to the yellow zone, into the 98.30-level, or underneath that, we’ll look for it back down towards the bottom of the triangle today for the USDJPY.
