By Greg Holden – The ascendant Japanese yen has continued to pull the AUD/JPY pair higher, but we are beginning to see a long-term bearish formation building. Following the sharp drop from early May, the pair has continued to fluctuate within a steadily climbing, and consolidating range; known as a Pennant.
A Pennant formation occurs when a sharp movement is followed by a steady flattening out, in which the price of the pair tests ever-narrowing highs and lows. Connecting these highs and lows allows us to see a triangle attached to a long “flag pole” (see below).
Typically when a Pennant formation has finished consolidating at the tip – in the case of the AUD/JPY this would be near the 78.00 price mark – the previous direction, established by the flag pole, will continue.
Technical Analysis
– The chart below is the AUD/JPY daily chart provided by ForexYard.
– Point 1: Here we can see our Pennant triangle drawn. The sharp downward movement you see occurring before this triangle is our flag pole.
– Point 2: At the tip of the Pennant – the consolidation point – you can see the price target of 77.98. Not surprisingly, this also corresponds with a solid Fibonacci resistance line (at 38.2%).
– Point 3: The Relative Strength Index (RSI) currently floats in neutral territory but, in support of the expected consolidation point being reached, the indicator points upwards. We should expect to see this indicator enter the over-bought territory prior to its continuation of the downtrend.
– Point 4: The Stochastic (slow) shows us the same thing as the RSI, listed above. We should also expect to see a bearish cross just before this pair comes tumbling down.
– The expectation here is for a steady boost in value towards 78.00, but the technicals appear to imply that the pair will likely fail to breach this line, and wide sell-offs should complete the Pennant’s forecasted downward movements.
– On the upside, if the pair happens to break through the 78.00 price mark, an expected climb above 80.00 is to be expected.
– On the downside, the resistance, and possible sell-wave which will follow the downturn, could end up pushing this pair back towards 76.00 over the next few days.
AUD/JPY Daily Chart
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
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