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USDJPY Rally Set To Fizzle

In my last article on the USDJPY back in May, I identified a double bottom formation. Double bottoms in an uptrend are generally great buy opportunities and can lead to large moves higher. However, the double bottom in the USDJPY at 100.76 has been quite flat. Let's take a look at the daily chart to see what we're dealing with.



The double bottom is clearly visible with the second bottom set on 21st May 2014. This should have led to a strong upward movement. Well, what has happened since has been anything but. Instead the trading has been wishy washy and now looks set to retest the double bottom zone.

When things don't pan out as expected, further analysis needs to be done in order to try and get back "in synch" with the instrument. So considering there has not been a strong move up I'm inclined to think the double bottom will be busted shortly and head down. In my previous report, I came to the conclusion that the long term trend was down so extra caution needs to be applied when trading against the main trend.

I have added moving averages with 14 (purple), 50(blue) and 100(red) time periods. We can see that the red line is above the blue line which is above the purple line. Perfect conditions for a downtrend.

I have also added a Moving Average Convergence Divergence (MACD) indicator which shows the averages appearing to cross over today, the red line now above the blue line, so that augurs for lower prices as well.

So it is looking likely that key support is about to be broken. However, I guess until that actually happens the bulls can live in hope!


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