The majority of the analysis and trade setups are shown with the use of price action, candle stick patterns, chart patterns, trend lines and Fibonacci levels. Today’s blog post will use a different approach for analyzing the Forex market today: the Ichimoku indicator. The indicator, which is of Japanese origin, has the interesting feature that it allows traders to understand various roles of the charts, such as support and resistance (S&R), trend and momentum, and perhaps some patterns.
The lack of price movement on the USDJPY daily chart starts to really sink in when a trader sees the angle of the Tenkan-sen (Tenkan-red line) and the Kijun-sen (Kijun-blue line): totally flat.
Price has so far not used the Kumo cloud (orange field) as a bouncing spot for more upside, but in fact price drifted almost fully below it.
The good news is that the USDJPY could be at an interesting decision spot soon. Here is what needs to happen:
- Bullish breakout: price needs to break above the Kumo cloud plus the Tenkan must have a bullish angle. My extra comments: in this case a bullish breakout is occurring and my last confirmation is a strong bullish close of a daily candle and preferably a break above the 120.75, which invalidates any contracting triangle.
- Bearish breakout: price needs to break below the Kumo cloud, the Tenkan must have a bearish angle, plus the Tenkan (red) has to cross below the Tenkan (blue) for a strong bearish breakout (strong because the cross of the Tenkan below the Kijun occurs below the Kumo). My extra comments: any shorts should aim for 114 as it represents a strong Fibonacci support level (38.2%).
The GBPJPY too has Tenkan (red) and Kijun (blue) levels that are flat and equal to each other. When compared to the USDJPY, the GBPJPY price action is already below the Kumo and is at an interesting bullish or bearish break zone:
- A bullish break above the Kumo indicates the restart of the bigger weekly uptrend (price clearly above the Kumo on that time frame);
- A cross of the Tenkan (red) below the Kijun (blue) shows significant bearish pressure because the crossover would occur below the Kumo which takes away a potential support level. Also the Chikou Span (green) is almost below the Kumo, which adds another bearish factor as soon the Chikou is not blocked by support.
The EURJPY is quite the opposite of the USDJPY: price action has already fallen strongly below the Kumo. However for a new bearish setup to occur, price must make a bullish retracement back to the Kumo or carry the Tenkan (red) above the Kijun (blue). Then a break back below the Kumo or a re-cross of the Tenkan (red) below the Kijun (blue) cold offer bearish break out setups (see screenshot for more information).
What do you think of the Ichimoku?
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