Over last few weeks I have had an increased number of trades in crosses of the commodity currencies. A lot of them were in combination with Japanese Yen, with those pairs on a real roller coaster ride. Strong sell-offs took place in preceding weeks, with good profits on at least 2 occasions. Recently prices found solid supports and rebounded. This rally has been under way for a few days, but maybe nearing an end. Signs of short term topping showed up, and while it is not a guarantee of prices turning, they should be given some attention.

I’m going to stay with AUD-JPY. This should provide continuation to former posts regarding this pair, which would be almost every update lately. Very important support was found at 76.20, level that had been holding for about half a year now. This was followed by a few days of an up move, all week long, really. Fairly typical after extended swing in one direction, the 1000 pips drop preceding it. For right now I view this as a correction, a bounce, in a prevailing down trend. On Friday daily chart of Aussie-Yen created doji formation, possible turning point and end of this corrective rally.

This doji has formed at decent place, after few days of an up move. This is positive. Unfortunately, selling it here has more negatives. Daily chart doesn’t provide good stop placement for going short on this time frame. First of all, objective would have to be previous support, or 76.20. However, next strong resistance, most logical place for a stop, is at above 86.00, way too far for comfort. One could use the high of doji for this purpose, but trading single candle on any time frame is simply too tight, doesn’t leave any room for fluctuation and is way too depended on things working out exactly as planned. It happens sometimes, but it can not be counted on. On my chart 100 SMA might be another place to define risk. Price could find resistance there, but that is not confirmed until candle is closed. For this time frame, it means waiting entire day for completion of the candle, during which time price can easily move adversely by 150 pips or more. Not the best of scenarios.

When Fibonacci retracement levels are applied to this chart, we can see that current doji lines up nicely with 0.38 level. This gives added weight to a possibility of price turning around here. Personally I don’t like trading 0.38 level, for the same reason as mentioned above- lousy stops, meaning too high risks in relation to rewards. Ideally 0.62 level would be best. Thing about Fib numbers that people tend to overlook, is that they don’t exist in vacuum. In order for them to be of any value, price action must support them. This means emergence of reversal patterns, or continuation, depending what it is we are looking for. On the chart above this combination is nice, but I see risks as too big. How about smaller time frames?

Intermediate term chart looks very promising for a sell. Congestion are formed right at 100 SMA, current high is very close, and there is one more minor high from  over a week ago, making this zone a rather formidable resistance. Should the price move under 78.80, this could be a good sell point , with an objective of almost 250 pips. Unfortunately for me, even this time frame is a little too large. I’m only trading for two days this week and taking the rest of it off.  Don’t want to worry about any open trades during this time.

Hourly chart looks promising if one is bearish AUD-JPY. Most recent low was taken out, a negative sign in an uptrend (positive if you want to sell it). Price is at 0.62 FIB level of the last swing, which also lines up with the high point on the other side, at 80.00-80.10 level. Risks are clerly defined, at last high, and we even have likely bearish reversal pattern with that small shooting star as last candle. In this setting it is a WEAK pattern, but supportive of overall picture. Put together this is a high probability sell set up. Of course, no matter how high the probability is, no single trade has a guarantee of doing one thing or another. Right now one has to deal with possible gaps on the open, which can put a serious a kink in analysis. Once that is played out, I will most likely be selling this cross, if the high of 80.45 still holds. Opening will decide it for me.

Mike K.