USDJPY Triangle at Crucial Break and USDCAD at Major Bounce

The USDJPY is at a critical spot. Price is hitting the daily top (red line) but price has not managed to break above longer than a couple of hours. Last week we already released a blog post warning traders of the upside potential IF the USDJPY does break (read here for more info).

The crucial question is whether price will be able to break above the resistance? Let’s review the clues:

  1. Triangle formation provides excellent “lines in the sand”. A break of the triangle chart pattern provides a reasonable estimation whether price is making the massive breakout to the upside or whether it reverts back into the messy consolidation zone (break below triangle).

USDJPY

  1. The daily candle stick pattern. Although price is struggling to break above the resistance, Tuesday’s daily candle closed bullish and had a significant wick – 76% of candle – at the bottom. Also Monday’s candle had a wick at the bottom (50% of candle). Wednesday’s candle could retrace part of the bullish looking pinbar and then find support.

27- 8- 2014 uj 2

  1. The weekly candle last week closed very strong: the body of candle was 203 pips and the close was 7 pips away from last week’s high. That shows that the candle closed 3.5% away from its high, which means that the bulls held extremely tight control on the candle. Such an impulsive candle usually sees a continuation in the same direction and the triangle on the lower time frames is most likely a small retracement of last week’s big bullish candle.

27- 8- 2014 uj 3

The USDJPY is not the only pair struggling. The USD is also fighting a tight battle with the Canadian Dollar. Eventually price did manage to break above the top (red line) but the breakout was extremely short lived. Bullish engulfing twins (red circle) after the break placed the bullish ambitions quickly in the freezer. The downwards retracement is still unfolding but I would expect price to respect the bottom of the zone (indicated by the two green horizontal levels) and not break through / below those support levels. If a bounce back up from these bottoms can be expected, how does that line up with higher time frames?

USDCAD

In the long-term perspective price has bounced off of dual levels of support (green lines) and made an aggressive rebound back up. The break out above resistance (purple trend line) was accompanied with good momentum so a trader can places a Fibonacci retracement on the breakout (orange Fib; placed from before the breakout towards the top of the breakout). Price retraced back to the 38.2 / 50% Fibonacci retracement and used those Fibs as a support.

Conclusion: although the break above resistance (red) was short, in the bigger picture the current downside seems to be a retracement for more upside. The first target of the CAD weakness would be the -27.2 target at 1.1060; the second target is the -61.8 target at 1.1156 (2 blues line). The entry would be near the weekly candle low of last week (light green line); the stop loss needs to be at least below last week’s weekly low or below the 50% Fib (red line).

27- 8- 2014 ucad 2

Does the trade make sense to you? Let us know down below!

Happy Trading!

 

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  • Mayuran

    Good analysis, starting find useful may be you have done it already but is there any article which says kind of generic top down approach you do on a currency.