Friday saw continued weakness s in the USDJPY result in a close below 112.00, and below a supporting trendline that has been in place since March.
To continue down or not? The Yen appreciating appears to be mainly a result of the global equities sell-off (as investors move to risk-off assets). The break below 112.00 isn’t very convincing, given that it happened late in the week and price snapped back somewhat on the close. However, I see two scenarios that would attract my interest to look for a short.
- Close below Friday’s low (at around 113.30).
- A retest of the trendline from below (playing out over a couple of days), followed by a bearish rejection of that trendline.
If price were to close on the daily timeframe above 112.00, I would forget the short and put this one back on the sidelines for now.
If you like double-bottoms and pin-bars, the Aussie has probably caught your eye. On the plus side for this potential reversal is that Friday’s candle did wick lower than the previous low, and close up on the day. Many orders that were aiming to continue short down there were triggered and have probably failed. Are the trend followers on the wrong side of this one?
For me, there is no long yet. My reasoning is simple – the lower-low, lower-high structure. Also, the 0.7000 level is a hairsbreadth away but hasn’t been tested. If you thought there were a bunch of stops below the previous swing low, you could bet there are plenty more at 0.7000.
But, we need a trading plan. So, here is mine.
If the price does indeed move higher (1), I’ll wait for it to push beyond the capping trendline and retest it.
If price pushes higher but fails where it has (2) – the trendline, I might look for a short instead.
Or if price mills around and then finally tests 0.7000, all bets are off. If we see a big test of the level, followed by a strong bullish close, it’s time for a long. However, if 0.7000 fails – well, you know the drill – we look for continued downside.
I see three elements in this XAUUSD chart that interest me.
The first is the box that price spent quite some time stuck in (1). Then we see the big push (2), kicking price out of consolidation. And now, we see an upward sloping channel (3).
It’s the upward sloping channel that interests me. Typically, these kinds of structures occur in markets that are trending down and represent consolidation before the next move lower. I think (and I may be wrong here) that this channel is consolidation, in what is the start of a larger uptrend.
So if the impulse candle (2) is up, can a consolidation (3) also be up? Sure. Price can consolidate in the direction of the trend, and when it does, it’s an indicator of how strong the trend might be.
The problem with trends is that it’s much easier to look back and say “yes, that was a powerful trend”. Useless without a plan unless you have a time machine.
So what’s my plan? I’d like to see the price come back down and test $1215, and bounce, setting up my long. Alternatively, the price could close higher than Friday’s high. That would be another reason for me to get long on gold.
If price were to test $1215 and close back below it, my interest immediately switches to the short side.