Dont get too excited Bulls - USDJPY DXYOverview - Sentiment immediately changed (...again... I know) from extreme bearish to excessive bullish from traders as we reverted back to the top of the channel. This is especially true in the USDJPY pair. The index and the USDJPY is still clearly in a downtrend. Unless you are eager to get ran over by the heavy weight greenback, I urge for confirmation before letting a recent upswing to cloud ones judgement. The last few weeks have been a grind of emotions with dollar bulls (myself included). With the current charting conditions, I would urge those to remain unbiased going into next weeks regardless of upcoming news.
Technically Speaking - In the dollar index, we are still clearly in a downward trending channel. The bottoms we have attained since January 23rd have been successively less extreme, rising off the bottom channel. This may be the start of a new trend as we see the bottoms starting to round, however it is likely to be more of a fake-out than a trend reversal.
In the past few weeks, each time the price broke above an RSI reading of 55, a sharp reversal occurred typically at the top of the channel. As you can see, we are trending just below it after a number of failed attempts to hold. Additionally, for those who are window oriented, there is still an open gap in the DXY around 99, indicated by the thin yellow box in the top chart.
USDJPY Index Divergence - In a previous published idea, I mentioned that it was not a good time to have a new long entry in the USDJPY as I warned of a potential H&S that successfully played out. That was when USDJPY was trending around 115 and before it flushed under 113 that week.
It is starting to look good for the pair, a double bottom, what looks to be a higher high off the most recent pulse, and price action that is diverging positive for Dollar bulls. The downward channel in USDJPY is clearly broken and it is clear that the the Yen is depreciating since January 13th when comparing the peaks and troughs.
This is great for the pair, but the dollar is still in a downtrend and is likely to reverse here again in the near future and give a better entry. There is also big news this week from the BOJ and the FED that is likely to shape how the Yen and the USD behave in the following weeks. ***Being long/short the Yen pairs going through the BOJ meetings may be self-destructive if the meeting results are not up to standard.
What I'd like to see - As mentioned before, this has been a slow predictable downtrend in the dollar. What I would like to see to signal a trend reversal would at least be a sharp flush to the downside followed by a sharp rejection and counter trend move. Whether that be to close the gap at 99 or not, we haven't seen this happen yet as it tends to happen before a trend reversal.
The above is not investment advice for a real account, but my own trading journal that I am sharing. I am not a licensed professional and am not selling anything. Before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience, and risk appetite. Most importantly, do not invest money you cannot afford to lose.
