The other week I wrote a post in which I laid out some reasoning for why I believed we’d be seeing some consolidation in the markets. Specifically, I looked at USDJPY, saying:
“Every time USDJPY has dipped below the 50-hour SMA since the election results, we’ve seen some extended consolidation. I’ve marked these three instances with blue rectangular boxes.
The first one lasted about four days, the second was a full seven days, and the last was just two days. We’re now trading below the 50-hour SMA once again, and I wouldn’t be surprised to see another period of consolidation.”
That post was nine days ago, and with Christmas behind us we’re starting to see at least some movement. Here’s what I’m observing in USDJPY now and why I’ve been selling the pair.
200-hour SMA gives way
Last night I went short (and covered a bit ago) USDJPY for the first time in a long time. While the longer term trends (daily and weekly) are still bullish, there are clear cracks forming on the lower time frames.
In fact, take a look at the 1-hour chart. This is the first time price has been trading convincingly below the 200-hour SMA in a long time:
This is significant in its own right and deserves one’s attention. But there’s more.
Hourly SMA’s are purely aligned to the downside
Looking at the same hourly chart above, it’s clear that the SMA’s are purely aligned to the downside. That means the 50 SMA is lower than the 100 and the 100 lower than the 200-hour SMA. All are pointing lower. This is one of my favorite trends to trade, the obvious downtrend.
For more on trend types and how I break down classifying trends, read the ultimate guide to forex trends here.
It’s still the holidays
Yes, it’s exciting to see a potential change in trend. There could be a lot of juicy pips waiting for us to the downside. But it’s still holiday time.
Remember, just because we’re through Christmas doesn’t mean the holidays are behind us. Most folks are checked out at least until the new year.
So stay nimble and don’t commit too hard to any specific trade. It’s just not worth trying to force something in these market conditions.