Daily Analysis – 19/07/2011

ForexPros Daily Analysis July 19, 2011

Is Reversal Next in USD/JPY?

Following weeks or relative inaction, the USD-JPY finally sprang to live last week. The price found solid resistance at the 100 SMA, around 81.60, and sold off for the next few days, closing below the critical 80.00 level. Before the trading stopped for the week, the lowest point reached was 78.45.

The USD/JPY touched that level twice, on two consecutive days, forming a possible “tweezer bottom”, well-known candlestick reversal pattern. Here this formation indicates a probability of a bullish reversal, even though the tweezer bottom is not regarded as a “strong pattern”, like a hammer or an engulfing line.

It formed in a general location, which supports the possibility of a reversal. The price has almost reached the 78% Fibonacci retracement level of the 76.12-85.52 dominant upswing, often a level where the trend reverses. It does not project how far the price should move from here, only that a probability for a change in trend direction has increased.

Unfortunately, tweezer bottom needs addition confirmation from the price action itself, meaning a bullish day. So far, there is none. Instead, the small dojis signal indecision. We need to see a more directional day, which will likely determine the next price swing in the USD/JPY.

Forex Trading analysis written by Mike Kulej for Forexpros.

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