What happened in the USDJPY last week (and it’s significance in the pairs story) and where we may be going…
When you analyze charts, it is important to tell the story of where we were, what “the market” did to enhance that story and then make a judgement of what may happen because of that story. It is no different than what an author tries to do in a novel,or even the flow of the story of your life (or in the case of those who love “Hamilton” the play, the story of the night…).
For the USDJPY last week, the pair peaked on Monday at 106.648.
Why was that significant?
It was just a few pips above the 200 hour MA. Bullish or bearish? It’s a bearish tilt.
The story continued by falling below the 106.408 to 106.465 area.
Why was that significant?
It defined the upper extreme from August 11. The price initially peaked in that area back on August 3. On the 11th the price broke above, retraced to the area and moved higher. On Friday, August 14 it based once again at the area. On Monday, it broke below. Bullish or bearish? It is another bearish tilt.
And then what happened? The price on Monday tested and then fell below the 200 hour MA (green line).
Why was that significant?
The 200 hour MA had not traded below since August 6th. It is a moving average that the market tends to react to. Bullish or bearish? The fall below with momentum indicated a more willingness of “the market” to the downside,
….And then? The fall on Monday stalled at the swing low from August 11 at 105.924 area and created a temporary floor with 4 other hourly bars stalling against the level.
What is the significance of that move?
A battle was on with some reluctance at the floor level. The price could have bounced to the 200 hour MA (a target for a retest) or broken below the floor. There is a twist in the bearish plot. How will it be resolved? Who will win, the hero (bears) or the antagonist (the bulls)?
The bears win!. The price breaks below the floor. The significance? The bears demonstrate they are in control. Stay below the floor keeps the sellers in control.
Monday had a lot of important story lines for traders.
The bearish story continues on Tuesday with the price moving to the swing area from August 5th and 6th (see green numbered circles 3 and 4) at 105.27 to 105.314.
It is another floor that pits the buyers and sellers.
On Wednesday, the plot and story line starts to change. The fight between the buyers and sellers has the sellers breaking the floor and moving to a low at 105.097. Buyers are in trouble again.
However, what happens?
The price does not stay below the floor at 105.27 to 105.31. In fact, the price spikes above that level. This is something new. The buyers are winning a battle. The price on August 18 spikes up to 105.60 initially and falls back down. The price moves back below the old floor near green circle 5. The bears are winning again. There is definitely more action and the buyers are winning some of the battles but the sellers are not giving up.
If the sellers are to take back more control at this point, they must take out the low at 105.097.
Can they take out the low for the week?
Nope. The buyers push the price back higher and above the lowest swing area at 105.27-314. That starts a huge change in the plot of the USDJPY’s story. The buyers start to win.
The buyers take the price all the way to and through the old floor at 105.924 and even the 100 hour MA (blue line). The action slows. Buyers and sellers tire ahead of the 200 hour MA near the close on Wednesday.
On Thursday, the price trades back toward the old floor at 105.924 in the early hours and holds the level. The buyers are keeping control.
The price moves higher, cracking back above the 100 hour MA and fights it’s way to the 200 hour MA (see green line).
What happens then?
Sellers are reinforced. Maybe some of the buyers go to the sellers side and the price STOPS at the 200 hour MA near 106.11 (see green line on August 20). Sellers try to take back control and will succeed if the price can stay below that MA level. It does.
Price action on Thursday, is up and down choppy but lower. A downward channel is formed. Toward the end of the day, the price moves away from the 105.924 level (black circle 6) and the 100 hour MA (blue line). Sellers are back in control below the 100 hour MA, but the buyers earned some respect on the run higher.
On Friday, the sellers continued to push lower. The price moved below the swing high from Wednesday at 105.604 and moved to a low at 105.433.
What happened at that level?
The price ran into the lower channel trend line AND the upward sloping trend line (see blue circle 3). The dual trend lines were enough to turn sellers to buyers and push the price higher. The price moved above the swing area (grey numbered circles) at 105.60-65 (grey 6 and 7) and ultimately the 100 hour MA. The old floor at 105.924 was broken and the price moved up to test the 50% retracement at 106.07. The buyers called it quits, and the price rotated lower into the close.
The next chapters need to be written now.
What will they say?
We are in one of the battles between buyers and sellers. However, the buyers are right now more fighting for their lives. The sellers have more of the advantage and control.
For one, the 200 hour MA (green line) held on Thursday, and the 50% held on Friday. Both those would need to be broke to give the buyers more control. If they can at the start of the week (and stay above) the buying can continue back toward 106.40-465 and then 106.648 (where it all started last week).
In the buyers favor, is that the price remains above the 100 hour MA and they did break above the topside channel trend line and hold the lower upward sloping trend line.
What about the sellers?
In the new week, the sellers need to show that they can push the price back below the 100 hour MA. If they can, the sellers would next look toward the upward sloping trend line at 105.52 (and moving higher). Move below that and the 105.27-314 and the low for the week at 105.097 would be targeted.
The price action tells us traders a story, much like an fiction author weaves his story. If you can understand the plots and story lines technically, it can help you see where the story may be going in the future.