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I’m going to get started today on the US Dollar versus the Japanese Yen [USDJPY]. I’m going to start all the way out here on the Monthly Chart. Get a longer-term perspective, because I think even this larger-term compression can be very important for the intraday traders, and I think you’ll understand what I mean as we go through today’s analysis.
First thing I want to point out is that blue downward-facing trend line that you see here on the chart. It starts all the way back here in 2002. Long way back in time. Then we can see about a five-year period, where it made a dip, came right back up into this area right here. This is June of 2007, so about five years, where it bounced around in here and then came back up and challenged where this blue trend line connects.
Then a long period of time, again, going from here in 2007, a long dip down, a long rally higher, and as we get down to smaller compressions, you’ll be able to see this a little bit better that this is also where the current market is challenging right into that bearish, blue trend line. So, keep in mind where that trend line is as we go down to the smaller compressions.
Let’s take it on down to the Weekly and hopefully you’re starting to see what I’m talking about. Top right-hand side of the chart. You could see the blue trend line coming in from the top right-hand side of the chart. We just looked at where that comes from on the Monthly Chart. So, here on the Weekly, you see it coming into play and you could start to see the candle bodies coming into play right around that blue trend line.
Obviously over the past few years, it has been in a dramatic uptrend. We’ve seen periods of contraction, like we see here in this triangle pattern here, where the yellow triangle is on the chart. We see some ranging right here for a several-month period inside this red box. It went into a range and we studied that for several weeks. Found support along the red trend line. Began the next leg of the uptrend. A few weeks ago, we saw it challenge there into the blue trend line, into the 110-level. A little bit of a dip down. Now we’re coming right back up into that area.
Very interesting information. Now take that to the Daily Chart, and now you could start to see why I believe it’s very important for even the intraday or shorter-term traders to take a look at those larger compressions, because if you forgot about looking at that Monthly Chart, you now wouldn’t understand where that trend line is and where our current intraday resistance is going to sit, right there around the 109-level.
Now, I know you’re probably saying, “Well, I could’ve seen the resistance there because of the historical price action right here.” We know that 109.0 has a high probability of being resistance. It’s a double-zero level, but I think, again, it’s very important to understand you want to stack your indicators. You want as much evidence pointing to a particular outcome as possible. It gives you a higher confidence in your trading experience.
So, here, into the yellow-shaded area, we see the red trend line coming down from the top. We see we’re testing very close to the last resistance high. The 109-level. That’s all pointing to the fact that we’re looking at likely resistance there into 109 today. And of course you would be very discouraged about buying it.
Now, if you bought it earlier, you bought it down here in the blue zone or maybe you bought it in the green zone. If you bought it before, then of course this is a profit target here into the yellow-shaded area and the 109-level. Clearly if it breaks above 109 and this yellow zone, we’ll push all the way back to 110 once again, but I think on the intraday this is a likely resistance level.
Forex Black Book trend bar is red. Not really concerned with that at the moment. I know it turned red because we saw this fall from the 110-level, down to the 105-level. You know, that was nearly a five-hundred-pip fall that we saw the USDJPY take. That’s why it turned red. It’s dark red right now because we’ve been going up for the past several days, but I definitely think that if you’re going to sell this pair based on the red trend bar with the Forex Black Book, this is a good opportunity as it rallies into resistance.
Let’s go ahead and zoom it in a little bit here on the Daily Chart. Just get it back to current time. One last thing I want to do, and I think this is going to be important for us too. Taking Fibonacci retracement from the highest high at the top of the chart, down to the most recent significant low that we see here at the bottom of that bullish, blue trend line. Fibonacci, high to low, puts the .786 Fibonacci retracement level at 109.04. That’s the bottom of that yellow-shaded area. We know the .786 is going to be an important retracement level on the way back up. The .886 sits just above it at 109.50. It’s giving us clear indication that this is resistance for the day today and be very discouraging about buying it underneath that 109-level.
Take a look back here on the left-hand side of the chart. Again, this is the Daily, so we see six days finding resistance underneath that yellow-shaded area, underneath 109 before making that run to 110 the last time we were underneath 109. So, I’m not saying that that has to happen today, but just take a look. History tells us what we might come to expect in the most current, recent market, and you could see 109 holding that resistance right now.
Take it on down to the 4-Hour Chart. As we get down here, you could see already the bearish, blue trend line from the Monthly Chart sitting on top of the market. 109. You could see the 109.0-level. You could see the Fibonacci levels that we discussed from the larger trend range. Let me zoom out one time. There’s that larger trend range from the highest high on the chart. Let me make sure it’s connected to that high. Make sure it’s connected to this low. 109.04 is that .786 fib. .886 at 109.50. I believe if you’re doing anything today on this pair, if you’re not already in a trade, the opportunity for the day, at least at the current moment, is selling on the USDJPY into the yellow-shaded area, underneath 109.
I don’t think I would be looking for a buy until one of two things happens. It has to do one of two things before I look to buy it. Number one: it has to fall back down to the pink-shaded area, and let’s go ahead and put this bullish trend line right there on that last low. Actually let’s put it on this low. That would come back down to the rising blue trend line. That would come down into support. You could look back in time. See the support back here on the left-hand side of the chart.
Just take a look. The first time it touched that yellow-shaded area on the left-hand side of the chart – first time, the left-hand side -, where did it go? Back to the pink zone. Bounced around between the pink and the yellow zone for several days before finally breaking above the yellow zone. So, take a clue from back here. Let’s go ahead and highlight that a little bit better from here. Take a clue from back here, and I’m going to change this up a little bit. Let’s make it a box and let’s make it red, and let’s do this. Actually let’s make it thicker so we could see this a little bit better. Let’s go ahead and make it thicker.
So, take a clue from right there, where that red box is, bouncing around in there. So, I think if you’re doing anything today, you’re selling the yellow zone, targeting the pink zone. Once it makes it back to the pink zone, then you could flip your position back to the buy side in the direction of the current trend. The only thing that changes that is if we see the breakout above the yellow zone. What happens if we break the yellow zone? Again, go back here to this red box on the left-hand side. What happened when it broke above the red box and the yellow zone last time? We found support on top of it and we rallied back to the purple-shaded area.
So, for the day today, resistance. Yellow zone. 109. We’re looking for it to go back to the pink zone. A little bit of retracement of yesterday’s upward move. Then we look for buy scenarios into the pink-shaded area. If it doesn’t go down and simply breaks the yellow zone, we target 110. This is a critical hinge point here, highlighted in yellow, around the 109-level.
One last thing here before we close out this currency pair. Let’s go ahead and take Fibonacci from the low, up to the current high. Now, that could change if we make a new higher high, but from the low to the current resistance high puts the .236 fib at 108.33. That’s our pink-shaded area. So, again, Fibonacci overlapping there into the yellow zone as resistance, the pink zone as support. Both blue trend lines, the bearish trend line from the Monthly Chart and the bullish trend line here from the 4-Hour Chart, providing us clues to support and resistance today for the USDJPY.
