This has been the week that has seen the ECB get a better set of fangs, the Fed being expected to fire some more funds into the system and the return to the blog of the descending triangle. The joy of the triangle, like all consolidation patterns, is that it shows a period of rest before hopefully the instrument gets itself back into gear and starts to trend once again. This may be the case with the USDJPY but as always there are some caveats – read on:
You can see here what I think is quite a decent example of a descending triangle. To my way of thinking this has now begun its breakout but if you draw it a little differently then it’s right on the breakout line – drawn with the red dots. If the FOMC puts the market on the footing that there is going to be lots of USD around for a long time to come then this may be the item that pushes the rate clearly out of the pattern and this is exactly what traders would be looking for.
The things that trouble me about this pattern:
1) If you think that price has already broken out then there hasn’t been much in the way of price acceleration which is something you would prefer to see on any congestion breakout; and
2) Whilst this would still be a good breakout pattern the fact that the USDJPY has broadly been drifting sideways for some months may limit the potential of the trade. The macro trend is certainly negative but it will remain to be seen whether it can really kick on from here.
With any trade you are going to have to weigh up the costs and the benefits which is what makes it such a challenge. It’s likely with this one that the next few days will be telling. Overall I think some price acceleration to the downside will be needed to firm up the case a bit.
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