Tuesday, August 16, 2011

What does this pennant mean? (2011-08-16 USD/JPY analysis)

Hang Seng Index rebounded more than 3% yesterday, surging above 20,200. I believe in coming few trading days the volatility would be getting lower and lower. VIX dropped 12% yesterday, which showed that US markets are calming down as well.

Volatility for stock markets might be dropping, but it seems like that for Forex is going to rise. Let's see Japanese Yen.

4-Hour chart of Japanese Yen (USD/JPY):



As you might remember, during the uncertain and plunging equity markets in July and August respectively, Japanese Yen and Swiss Franc were the two currencies that stood out of the crowd and strengthened quite a lot.

As an attempt to curb this situation, both government made intervention to stop the trend. For Japanese Yen, this can be seen on the two large white candlestick in early August on the above chart.

Trend for Franc has reversed, and the currency was weakening since then; however, it looks like the trend continues for JPY. Speculators have chosen to keep on pushing the Yen.

For the last few days, a pennant was formed after an obvious bearish trend. If USD/JPY breaks down, this is a bearish continuation pattern and that the price could slump to 72-73.

If the price breaks out, it shows that JPY has topped and its trend is going to change. So its time to long USD/JPY.

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