USDJPY as previously mentioned this week had broken a key technical level that has been aiding in support for the last year. After this break, the market proceeded to sell off by over 500 pips before recovering some of the damage at the end of the week. What I did not mention in that analysis as it was not needed at the time was what else the Key Technical level of 116 was acting as, the neckline of a Head and Shoulders Pattern that has been forming since very late in 2014. Head and Shoulders is a reversal pattern, they require a preceding trend, USDJPY has been in a bullish trend since 2012.
The Measured Objective of this particular reversal pattern is done by calculating the distance between the peak of the head, and the neck line itself. In this case it amounts to very roughly 1000 pips. Coincidentally the moves over the last couple weeks have also amounted to 1000 pips. This puts the measured objective of this move at around 105-106.
The real trade for any Head and Shoulders pattern does not occur when the break of the neck line happens, it is executed when price returns to the neck line and is properly defended as a retest or power transfer. I mention this because I do not want people to assume that because the neck line is broken that we are instantly going to drop to 105/106 this next week. Is it a possibility? Yes. However it is not likely, the market might be taking time to digest all the events that have transpired over the last couple weeks, consolidating, building power for a move lower.
In 2008, GBPJPY had a picture perfect Head and Shoulders reversal trade, I want to illustrate that trade below so you can visualize partially what we may be looking for in this trade set up:
The pre-emptive entry occurs when the neck line is tested. The confirmed entry comes after that retest when the bullish strength leading up to the retest breaks. It is also worth noting the amount of time that transpired before the actual trade took place. Over 6 Months. I'm not saying that this USDJPY trade will take that long before executing but it's important to keep in mind. If I had to guess the drop in USDJPY from 116 won't take place until at least March.
Here is another look at what has been transpiring with USDJPY since 2012. We can see the Bullish Trend Strength breaking. Likely support is obvious and I've highlighted areas that the market will be looking at as well.
Here is another look at USDJPY only covering the last year, and again not taking into account the Head and Shoulders Pattern:
I will be looking to sell USDJPY when a retest of the neck line occurs near 116. Confirmed entry will be when the bullish strength leading up to that point breaks. Preferably there is a corrective/consolidation type structure that forms while that happens.
Keep an eye on it everyone. Feel free to comment/like/follow.
Comment
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1 Hour overview for people thinking that last night's drop was the beginning. Also pay attention to the fact that 114-114.30 like several thought would bring the actual resistance didn't do much...the real resistance will be closer to 116
Comment
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Another mid-week look at what I've got my eyes on
Sells are possible from here - but a break above blue - gives the necessary confirmation to make a run at 116. I'm not surprised at all that this week hasn't amounted to much on UJ - still 2 days left though
Comments
Mrsaini
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Agree, but its unlikely to re-test to level 116, 114-114.25 is more feasible
Mrsaini
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Thanks, Any view on USDCHF dear.... it looks like this pair is also getting ready for big move down...
Synapse
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The major move down recently for USDCHF is actually a lot more bullish than you might be thinking. Back to the beginning of 2015 the recent move down for USDCHF is actually breaking higher off of a retest of the former resistance level. The stage is set for this pair to reach 1.01/1.02 area, however to be much longer term bullish a close above 1.02 is needed. A failure to close above 1.02 is actually going to be bearish and would support a retest of the former support. Here's a zoomed out daily chart to illustrate the levels.
Mrsaini
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Well, This chart make more sense, I don't know why but I am giving more attention to break below support trend line :) I am already short from the level 98... I am going to be little more careful now...
Synapse
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114-114.25 makes sense especially if you were paying attention to trading this week. We struggled to break this level until we finally did and saw the plunge to 111. However, never underestimate the power of the market to push limits. 116 is the level that was broken, not 114. I expect 114 to bring minor resistance but 116 to bring the desired sell location. Either way we're not guessing at the high, we are watching the bullish strength the market defined to break.
Csys
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I knew someone must have spotted the same idea as I published this:
BusinessInMotion
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You are goddamn right!
SherwynDavid
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Bro', Now that GBPJPY has shown some recovery on Friday, considering the above USDJPY analysis, until what level can we expect GBPJPY pair to rise? And what's the ideal entry to short?
HumphreyNR
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Nice analysis, Synapse. Newbie to trading...but I'm already falling in love with the analysis and comments given. Thanks and happy trading
Synapse
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Hello and Welcome HumphreyNR! Glad to see you start getting involved with trading. It truly is a tremendous investment opportunity for all levels. There are many things I wish I could go back in time and tell myself about trading over 8 years ago when i first started getting involved. Patience and flexibility is key. Risk management is far more important than money management. Keep an open mind and find what works for you personally...there is no one and only way to succeed. Feel free to ask questions and good luck!