My last post mentioned pending buy order I had in GBP-JPY. The entry was at 134.95, seeking 100 pips gain. Order was filled while I was whiting the post. Here is what happened.

Rather surprising run took place, taking the price to well above 137 and meeting my objective in the process. It was nice way to finish the week. This loose end tied up, I’m going to take a look at AUD-JPY. Last week I followed it with mixed results, trying to take trades on the long side, using mostly 1H charts. After the massive sell off over last few months, I think this cross is building a long term bottom here. This would be the case for most JPY pairs. I chose AUD-JPY for this analysis because it made an all time low of about 55, a fate other currencies avoided, although GBP-JPY is not far away now.

As we can see on this monthly chart that price has stabilized after historic sell off. Trading ranges have contracted, which suggests potential end of the down trend, or at least start of a sideways movement until new fundamentals emerge and influence traders decision making process. This should be viewed with optimism by those who are bullish this pair, since important, long term turning points take rather long time to develop. Just look at the market bottom from 8 years ago. While jury is still out, it looks like early stages of similar process are taking place now. Monthly charts are not a tradeable time scale(not for me at least) but they are important element of trading landscape.

Zooming it to daily charts, we see that price is contained within the span of last leg down, an area between 74 and 55.  I would expect this market to stay roughly within this this area for some time, maybe 2 months or so. The red zig-zag is not to scale, just a representation of approximate next moves. Somebody who trades triangles, pennants and wedges should be able to see them here. I don’t use these formations myself, since there is great degree of subjectivity in drawing them. We should see, on daily chart, price being pulled towards 100MA, or vice verse, depending on the point of view. Undercutting the low of 55 doesn’t necessarily mean resumption of down trend. Personally, I don’t see another major leg down of 1000 pips or so, but rather slow up turning process.

4H chart is more of my trading time frame, together with 1H graphs. On this time frame I like the price starting to “hug” 100MA, important step in turning. I’m watching areas at points A and B. These two levels must be taken out before we can start talking about longer term reversal. Incidentally, recent minor lows, 1 and 2, are not of any real importance here. The only level that matters on this chart is the low of 55. My trading here will be limited to long positions, mostly on 1H charts.
A lot of people are talking about BOJ intervention. Reports suggest that large group of Japanese manufacturers petitioned BOJ for just such a step. Rumor has it, a line in the sand is drawn at 90.00 USD-JPY. Now, one shouldn’t be selling Yen on this kind of observations. Decision should be based on other reasoning .Should the intervention happen, it would be a bonus. But one can not get blindly into these crosses with a hope that if things go wrong BOJ will come to a rescue. In 2003 they defended 115 level for several months and USD-JPY still fell to just above 100, despite massive amount of money spent. A lot of traders, who had faith in intervention, got wiped out.

Mike K.