US dollar continues to build bottoming pattern against Japanese yen
The US dollar rallied during the Tuesday session and took out the top of the inverted hammer from the Monday session. This is a very bullish sign as it breaks through the resistance and traps the sellers from the Monday session. They are now losing money and therefore need to jump in and go long to cover their positions. Beyond that, it’s also happened at an area where you would expect to see at least an attempt at support.
Breaking through selling
The market breaking above the top of the shooting star shaped inverted hammer during the trading session on Monday during Tuesday trading is a very strong sign. All this people are losing money now, so therefore they need to start buying this pair, adding more fuel to the fire. That being said, there is still plenty of selling to chew through from the Friday session as we wiped out a lot of potential support.
The fact that we are going against that move on Friday tells me just how much confusion there is in this market, not to mention the fact that the Thursday session was a hammer! In other words, this pair is all over the place and looks likely to chop around going forward.
Longer-term bottoming pattern?
The recent action suggests to me that we are trying to form some type of longer-term bottoming pattern. Typically this is what happens when you are trying to do so, we get a lot of choppiness going back and forth that is indicative of a market that doesn’t know where to go. If it was going lower previously, and we are starting to “rethink the situation”, then it’s very likely that we are going to see some hesitation to the selling. That by its very definition suggests that we could be seeing a turnaround.
That being said, there are several things to pay attention to above that could cause a bit of issues, not the least of which would be the 50 day EMA which is painted in red on the chart. The market breaking above that level is certainly clearing a psychological hurdle, and that of course could throw more money into the market.
Short-term range bound
So for the short term, it’s probably going to be a market that goes back and forth between the 50% Fibonacci retracement level above and the 61.8% Fibonacci retracement level below. However, it does appear that we are trying to turn things around and show signs of momentum building. Eventually, we could make a “higher high”, which should send fresh money into this market or at the very least people short covering, both of which should put upward pressure in the market. With that in mind, it’s very likely that we are going to eventually break out but in the short term we simply have to work with the market that we are given. I favor buying as opposed to selling, but I also recognize that you can’t jump “all in” until break out.