Fibonacci tools never cease to amaze me. The question becomes do they predict or become a self fulfilling prophecy? In the end it may not matter. What does matter is that Fibonacci tools assist traders in generating expectations on price action whether you day trade or trade a couple times a week. Traders can quantify seemingly random or chaotic price action with the use of Fibonacci tools.
Near term resistance on the JPY was at 88.00 or R1 as shown on the Graph below. R1 was tested twice before giving out last Thursday the 25th. R2 at 87.15 formed in December of 2008 and was tested again in January of 2009. The Candle that broke R1 stopped precisely at R2. The very next day R2 was taken out. The question becomes where will price go from there?
For the answer we turn to Sir Fibonacci. If you drew a Fibonacci Projection from the JPY low back in April of 09′ at a handle of 101.44 until R1 then the next Fibonacci level forms at 84.84, or 123.6%. Notice on the Graph that JPY hit exactly that line before retracing its path back to R2.
Simply looking at price action, the breaking news, and fundamentals would have left a trader sidelined by the volatility. However, the use of Support and Resistance lines coupled with Fibonacci Projections helped interpret price’s volatile ride.
The BOJ picked up its rhetoric alluding to potential intervention once the Yen slid beneath 85. Japan almost outright favors a weak JPY as they rely on a weak exchange rate for their export business. The export business accounts for a large part of Japan’s GDP. So where will the JPY go next? Consult your local Fibonacci tool…