Coming on top of my recent USDJPY comments in some of my recent posts. - Here is an interesting little observation on the USDJPY.
Since the Mid 1980s the USDJPY has had 5 major downtrends, as highlighted by the red areas on the top chart below. - During all these declines the weekly candles failed to close above the 95 week simple moving average. - However, in all 4 previous cases, once a weekly close occurred above the 95 week SMA, the weekly candles never closed below the level of this break for at least 17 months and significant rallies occurred, the smallest of these being 13 big figures in 2006. - Well guess what just happened ? - See bottom chart.
Of course, past performance is no indicator of future performance, and 4 previous occasions of a phenomenon is not statistically significant. Also as is always the case,records are there to be broken. - But as a risk/reward bet it may be worth some consideration.
Given how significant this may be, I thought it would be worth looking at the daily action around the previous breakouts, to get an idea of how this looked at the time. - As you can see, on closer inspection the breakouts were rarely straight-forward. - In all four prior cases, you can see there was quite a bit of noise around the 95 week SMA, this occurring before, during, and after the break and typically lasting around a month. [Note, I used the 470 day sma as a proxy of the 95 week sma, this was the closest in terms of matching levels.]
Looking at the current USDJPY chart, there has been very little action close to this level yet (perhaps a week at most). Hence, further significant USDJPY strength may have to wait for some consolidation over the next three weeks or so, possibly with some noise anywhere over the next few weeks in the broad 79.00-83.00 range. - (See current daily chart below)
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USD INDEX(DXY) has also produced some interesting recent price action: - The weekly chart has produced a near 'Bullish engulfing week', whilst daily price action is very close to breaking out of a Bullish Falling Wedge pattern, which could have significant upside follow through on a clear break. - See charts below.
Disclosure: I am currently long USDJPY.
Please Note: In additional to occasional technical analysis, my main profession is as a 'Trader Performance, Psychology and Development Coach'. - If you would like to find out more about my work and how it could help you or your business, please email me on sgoldstein@bgtedge.com or check out my website www.mindsetofatrader.com.
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Since you use wedges, do you use Elliott waves for identifying the position of the market as well, since wedges are based on the waves?
ReplyDeleteHi, Nice post! Would you please consider adding a link to my website on your page. Please email me back.
ReplyDeleteThanks!
Harry
harry.roger10@gmail.com
HI - I don't use Elliot wave, I find it a little too prescriptive myself.
ReplyDeleteHarry - Is you website - 'I think about money all day long'? - or is there a different website I am missing. - Its just that my blogroll are all specific commentaries about financial markets - Economic, fundamental, technical, etc.
I like USD/JPY upside because I think interest rates in the us(TNX)are heading higher. Plus, add in the the fundamental demographic/funding difficulties face Japan going forward. Although USDJPY closed above the 95 day ma, it didn't make the 100 day. I think the best way to play is to buy dip down to 79(55 day ma) and then add on break back above 95/100 day ma.
ReplyDeleteI find wedge patterns to be one of the more profitable patterns- might look for a kiss back trade down to 79.10.