The Australian dollar has strengthened considerably against the Japanese Yen throughout the past month or so, and the three-day formation of an ascending triangle suggests, traditionally at least, there may be further strength left in the AUDJPY. However, now and again an ascending triangle can precede a reversal in an uptrend. Here are the levels to watch in both situations.
The pair is currently trading just shy of triangle resistance at 96.074, a level that has been reached three times throughout the past week. On each occasion, the level has catalyzed a strong reversal and some considerable downside momentum. The last time price reached resistance, the pair reversed to the upward sloping triangle trendline and has traded along this line for two days.
First, lets take a look at the bearish argument. With a lack of any potential market moving data heading into the weekend, any bias in the pair is purely technical (not accounting for risk sentiment). A close below resistance would offer up an initial downside target at previous lows of 95.005, and would put the triangle trendline as the level to watch. A break of, and a close below, the trendline would suggest a medium term downside reversal, with previous support at 95.930 an initial target. Beyond that, look to strong Thursday support at 95.798 as a secondary intraday target.
There is, of course, the potential for an upside break. This would validate the pattern in its traditional sense, and suggest a continuation of the longer term uptrend. A close above resistance at 96.074 would offer up an initial target of weekly highs at 96.125. Beyond that, look to last week’s highs at 93.236, and potentially, 96.466 as secondary and tertiary upside targets.
Bear in mind that fresh highs will probably trigger a round of profit taking if price reaches 96.125. In the short term, this could serve up a correction towards triangle resistance.
To contact the reporter of this story; Samuel Rae at Samuel@forexminute.com