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USDJPY Set for Big Reversal

Originally published 27th August 2014.

Price is now at the key resistance area flagged in my last USDJPY report. So is it likely to turn back down or bust higher? Let's have a look at the charts.


Daily Chart

USDJPY Daily Chart

We can see price has been trading in a range for most of this year. Price is now back up at the top of the range just above 104 and a double top with the April 2014 high looks like a decent possibility.

I have added a Relative Strength Indicator (RSI) which shows this high being at extremely overbought levels.

I have also added a Moving Average Convergence Divergence (MACD) indicator which looks to be rolling over with a bearish crossover in the midst. The MACD is setting up just like it did at the April 2014 high. This similarity can be seen in the green highlighted circles.

Price may nudge a touch higher but overall, price could be expected to turn down from here.

In my previous report, the big picture was outlined showing a long term downtrend in play. It was my opinion that once this current rally top was in place, a big move down in line with the overall downtrend would commence. Is this still the case? In a word, yep.

I believe a big play short opportunity is at hand here and I intend to get involved.

Let's take a long at the monthly chart just to refresh ourselves of the bigger picture.


Monthly Chart

USDJPY Monthly Chart

I have added Fibonacci retracement levels of the move down from the June 2007 to most recent low. This rally has made a perfect hit on the 61.8% level. A standard bear market rally!

In my previous report, I showed the retracement levels from the move down from all time high to recent low and this high was also a virtual perfect hit on the 38.2% level. So there really is some nice symmetry being exhibited here that provides solid evidence that a long term bear market is in full swing here.

This gives me added confidence in my bearish opinion.

I have also added the Parabolic Stop and Reverse (PSAR) indicator which shows price busting support earlier this year. With the dots now to the upside, bias has to be given to lower prices. Generally, lower prices are to be expected until those dots are broken. Those dots stand at 104.84 and that is the level that I intend to put my first line of stop loss orders.

If price does indeed turn down here and then cracks below the trading range low of 100.75, then a very bearish double top with the trend will be in play. And with that, the floodgates should open right up to the downside.

 

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