The yen and gold have been unrelenting in their trends since the start of this year. However, we expect to see these trends nearing their end and a modest pull back is on the cards.
USDJPY (106.4): April has been a bearish month for USDJPY although in comparison to February’s price action, April’s declines were moderately lesser in comparison. Price action in USDJPY is seeing the major support at 105.29 – 104 level fast approaching. The monthly candlestick pattern closed in a near marubozu type of a candlestick pattern which is a trend continuation pattern and comes after March’s near doji close. The monthly Stochastics however points to a lower low being printed, against the higher low, which is a hidden bullish divergence, when comparing the lower low formed in early 2014 at 101.35, compared to the current lows near 106 levels.
It is likely that the USDJPY monthly chart is indicating that the current downtrend is nearing its end and could signal a potential retracement. Price action also shows a retracement to the 38.2% of the Fib level at 106.65, of the measure move from the September 2011 lows of 75.57 and June 2015 highs of 125.859.
Looking at the previous price action, we can see that there was a minor hidden divergence which eventually gave way with the support level breaking strongly. If USDJPY holds at or above 105.294 – 104 region, we could expect a rally towards 115.857 – 117.404 region.
On the daily chart, we can expect to see a pullback (if any) to stall near the 108.72 – 108.160 level. Retesting this broken support for resistance could then pave way for the declines to 105 – 104 region.
Look for any doji patterns forming off the daily chart over the next week which could signal the move to the upside.
The ideal way to trade this position is to sell near 108.72 – 108.160, for a move to 105.80. Alternately, look for long positions near the 105 – 104 region and build up positions for a move towards 116 region.
Or make use of binary options by purchasing CALL options at 104 – 105 for a 30 day or closest month expiry from the time USDJPY moves to 104 – 105 levels for a 75% return on the trade.
Gold (1292): The monthly Gold chart shows a bullish continuation with prices closing above the previous month’s high. However, there is a strong resistance level near 1307.5 – 1293.42, which could limit further upside gains. The rally in Gold came about after the breakout from the descending wedge pattern near 1191.57 – 1208.3 levels and has seen little to no pull back to test this support level. The Stochastics shows a strong hidden divergence at these levels and we could therefore expect to see a potential move lower.
On the daily chart, we notice a bearish divergence building up, which could see Gold prices decline to the 1250 levels in the near term. If 1300 is not reached currently and gold pulls back, look to buy near 1254 – 1255 levels for a move to 1300, which should make for a good level to sell Gold from.
Looking to selling Gold from 1300 for 1250 and 1200 or alternately purchase PUT options near 1290 – 1300 for a two month expiry period which would yield a 75% return on investment.