The price of USDJPY has rallied significantly recently as the JPY weakness surges in the markets. However, could this rally be ending soon?
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The strength meter helps us identify what currencies are gaining strength and what currencies are losing strength. However, if a currency is extremely weak like the Japanese Yen in this instance we can often see its weakness reverse and the market strengthen.
This information combined with technical analysis can allow us to find a top or bottom in a market in the short term.
The last time the JPY began to strengthen from a similar level on the meter and the USD began to weaken the price reversed for a number of weeks. This could happen again now the price is at a major resistance level.
The Weekly Chart
The weekly chart clearly shows the price in a strong uptrend in an impulsive phase. This will mean that the price will likely continue to move higher if the strength and weaknesses of the currencies continues in the short term. However, the price is at a key resistance level. As we can see the market has rejected this level of resistance on numerous occasions offering an opportunity for the market to reverse its trend even if it’s only in the short term.
What we could wait for here is a weekly bearish candlestick, if that forms it could be a sign that the weekly uptrend could be entering a bearish retracement phase. This could give us the opportunity to trade back to previous areas of weekly support which is currently 112.25.
The Lower Time Frames
If the weekly time frame does begin to enter a retracement phase here then we should see the lower time frame reflect that with its trend. On the daily for instance we can look for trend reversal patterns this could be something like a head and shoulders pattern or a double top pattern. This could offer us the opportunity to trade short.
Alternatively we can look for a short back to the previous daily highs by looking for a reversal pattern on this time frame. At the moment USDJPY is forming a low ranging candlestick at the previous swing highs. This could lead to an impulsive phase forming, if we expect a retracement back to the daily swing highs then we could look for a break of this candle low for a move back down to the support.
If you haven’t seen our week ahead analysis yet please follow the link here.
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