Yen Pairs retreat from critical levels… But don’t take your eyes off the charts too long!

Last week I posted a shot of a Head and Shoulders pattern on the GBP/JPY and just as the price approached the critical level we saw an abrupt about face in the general direction on the currency. This is not unusual and I have heard it said that sometimes a failed signal can be the best signal in representing the next opportunity. 

That said though the pattern is still valid. The two things we need watch for now are: A) A break of the neckline to confirm the pattern or B) a new high above the second shoulder to invalidate it. In fact it is not uncommon to see that kind of retreat to such an important barrier on the first attempt. Let’s see what happens when the price action comes back for another try. In fact I’ve place a longer term view of this currency pair to show what happened the last time a Head and Shoulders pattern appeared. This one is inverse and definitely started a new general direction on the pair. So keep a very close watch on all JPY pairs for breaks below their August low’s.

Fundamentally it is hard to sometimes understand that a reaction on the stock markets have a strengthening effect on the Yen. This however is the case as the Yen strengthens when traders move to reduce risk.  In the news is how there is wide spread opinion now that the Shanghai exchange may be a bubble in the bursting stage and this could have a domino affect on everything else. What is still yet unknown of course is just when the next attempts at these critical levels will take place. However I can say that in the short term I noticed a ‘Diagonal’ or ‘Wedge’ on a 15 minute EUR/JPY at market-close on Friday. Look for a sudden burst of activity at market open on Sunday.

What about the USD versus the GBP and the EUR.

Last week I talked about how the EUR and GBP where flying a little too high for political and economic comfort and we are now starting to see that these currencies couldn’t keep going in one direction. Although the news isn’t great out of the US it seems that pour news out of the Euro Zone is giving back some momentum to the Dollar. But don’t get too comfortable thinking this is for sure the top as there is now strong belief a large US interest rate cut is coming again on December 11^th. Traders and economist may start pricing in this expectation starting next week. Let’s watch the highly anticipated Employment numbers this coming Friday to get a sense of what may be to come the following week.

A quick note on the CAD

We should see a little bit of rejection here and then some consolidation around the par level for the next week or two. The Canadian will be going through a bit of an identity crisis now if Oil continues to drop. It’s going to walk to its own drum for a while I think.

Have a great weekend and positive trading week.

Pierre Charlebois

TECHNICAL LEVELS

EURUSD
RESISTANCE: 1.4910
SUPPORT: 1.4520
SENTIMENT: BEARISH

USDJPY
RESISTANCE: 112.90
SUPPORT:108.50
SENTIMENT:BULLISH

GBPUSD
RESISTANCE:2.0835
SUPPORT: 2.0355
SENTIMENT: BEARISH

USDCHF
RESISTANCE: 1.1510
SUPPORT: 1.1160
SENTIMENT: BULLISH

USDCAD
RESISTANCE: 1.0155
SUPPORT: 0.9820
SENTIMENT: BULLISH

AUDUSD
RESISTANCE: 0.8955
SUPPORT: 0.9725
SENTIMENT: BEARISH

GBPJPY
RESISTANCE: 231.30
SUPPORT: 222.40
SENTIMENT: MILDLY BEARISH

EURJPY
RESISTANCE: 165.05
SUPPORT: 158.70
SENTIMENT: BEARISH