After running into resistance, is the USDJPY rally over?

USDJPY has run into a significant resistance that we covered in a previous posting ‘Will USDJPY gain under the loose monetary policy run by the US Federal Reserve?‘ This level is the 2010-low and on a chart, is a very significant pivotal level.

USDJPY weekly chart

2010-low a key pivot level

Why? From the chart we can see that it is the axis of what is now a consolidation triangle. A horizontal support turn resistance over nearly 3 years also has strong significance. Crossing this level could provide a strong clue to market sentiment.

Change of trends start with an expansion in price

Although the pair has run into resistance in the big picture, all is not lost. Indeed, the seeds for further gains have already been sown with a bullish expansion in price in October. As we can see also despite recent resistance, a recent support has been found at week 42 high. Bullis traders can look out for the following:

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Green zone shows the bullish expansion in price for the month of October; meanwhile price has printed clearly support and resistance

  1. The rally is truly considered over only if price movement undoes the gain made in October by doing more than 100% retracement
  2. Before point 1 can happen, price needs to go break below recent support at Week 42 high (blue dotted line)
  3. Early warning can be found if price prints a clear-to-read chart pattern between the current support-resistance zone; a reversal pattern such as head and shoulders, double top, triple top will lend strength to bears. A 1-2-3-4 or any typical continuation pattern such as flag, pennant or downward wedge will certainly be very bullish.

Some times it takes as little as one knock to take away resistance once and for all.

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