Analysis of the Yen: Opportunity for Trend Traders?

The Yen has marginally strengthened across all currency pairs, but the largest gains were posted against relatively weaker currencies this week such as the Swissy (CHF) and Loonie (CAD). Today’s post will review the CHFJPY and CADJPY and evaluate whether the downtrends provide an opportunity for trend traders to join the party.

MASSIVE BREAK ON THE CADJPY?

The major break is referring to a potential bearish breakout on the weekly chart. The breaks on these time frames are always interesting for trend traders because of the potential wide open space offered.

The CADJPY weekly has a well established support trend line (blue) and resistance trend line (orange), which together form a contracting wedge chart pattern. The trend lines are “established” because both trend lines have multiple hits. They also have decent 45 and 25 degree angles, which indicates that the trend line is not too steep or shallow.

POTENTIAL AFTER BREAKOUT

A break of the wedge could lead to a big potential. When a Fibonacci retracement tool is placed on the first bearish swing high and swing low, a 78.6% Fibonacci bounce occurred during December 2013 which gave this pair its first higher low. The target of that 78.6% Fib is the -27.2% Fibonacci target at 89.21 – which is 450 pips away from the current price level. How could a trader capitalize on that? Let’s zoom in to the daily chart.

The bearish momentum is clearly visible on the left side of the chart. A break of the support trend lines (shades of blue) could be the signal for a continuation of that bearish momentum. Hence the breakout trade would be any break of the 3 trend lines. Although one breakout has already occurred, two trend lines remain intact. As a general rule of thumb, it could be wise to avoid false breakouts by waiting for the daily candle close. If a trader sees a strong bearish close (closing price near low), then the trade usually has a better timed entry.

If and when the break will occur needs to be monitored on the daily chart. In the meantime, price is heading back towards resistance (magenta and red lines). A break above resistance of course would cool down the bearish enthusiasm and might lead to a counter trend break back towards the bigger trend line (orange).

CHFJPY

The CHFJPY is in full fledged downtrend according to our DTT trend indicators. This makes a lot of sense when reviewing the daily chart as price is clearly building on lower lows and lower highs. The difference with the CADJPY is the fact that it has a weekly bottom at 111.65 very nearby. Also price has been bouncing off of the support trend line (blue) multiple times which could be part of a falling wedge chart pattern. Due to these factors, traders should be aware that price could retrace back to resistance lines (purple and orange) before a bounce can be expected.

Are these 2 pairs on your watch list? Or do you think that the currency pairs run too much risk?

Let us know YOUR thoughts down below.

Happy Trading!

 

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Latest posts by admin (see all)

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news