Over the last five or so trading days, the JPY has seen strength across all currencies pairs. Even more telling is in the USDJPY as the US Dollar has been bullying both the EUR and GBP during that same period. One thing really good Forex traders do is get the lay of the land when they are trading. By that I mean looking to see who is currently the king of the hill and who is retreating on all fronts. Without a doubt it could be said the JPY has been a driving force followed closely by the USD and AUD currencies respectfully.
On the other side of the spectrum we have the EUR and the GBP bringing up the rear is terms of being the weakest on the board. Even the EURGBP is consolidating in price and neither is really getting the upper hand over the other.
By now I am sure you can actually smell popcorn because that’s the way our brains tend to play tricks on us and that’s exactly what the JPY could be doing now. We have all been told that the trend is our friend and to never trade against the trend. Retail trader beware, the second part of that saying is until the bend at the end! All market movements occur with an impulse and a correction and while the forex market does have longer trends than other asset classes, it still will have correction moves scattered throughout.
In analyzing the current price and the main reason I linked six charts was to show that across the board the JPY has entered an area where price has bounced. Much like previous articles where we have talked about the “channel effect” and also breaking out of that channel, there are certain price patterns that increase your odds of predicting that bounce. Novice traders out there hate reading the word “odds” but that’s what trading is about, stacking the odds in your favor. The USDJPY for example trades about $1.2 trillion a day so besides the central banks, there are very few players than can move that market like the stock market which can be moved by many more single players.
If the bounce does occur, it will most likely occur across the wide spectrum of currency pairs. There is a similar pattern in the pairs that can been seen which also lends itself to increasing those odds and that’s the sharp drop into the support area. This gives traders a great projected target range as well as price action shows strong movement with little resistance in the way noted by the green ovals.
It may not be the end of the trend just yet for the JPY and what that will look like is the consistent break of the support zone on the six pairs listed above. Two pairs that stand out that may provide great trading oppustunities are the USDJPY and the GBPJPY with long racetrack style wicks
Going into a holiday weekend for the United States may be what the pairs need to finish their alignment or maybe Europe and Great Britain will take advantage of the US markets not being open on Monday and fight back against their recent weakness. Either way it breaks I like my popcorn with extra butter!