By: Mike Kulej
Last week turned out to be extremely volatile for the Japanese Yen, which is perhaps best exemplified in the USD-JPY pair. In the aftermath of the earthquake that hit Japan, the Yen became much stronger pushing and made a new all time high versus the US dollar.
The USD-JPY broke out of its tight range and plummeted to 76.12 in matter of hours. That was followed by an immediate, sharp rebound, later exacerbated by a joint intervention of central banks. The price spiked up to 82.00 and settled at 80.55 by Friday’s closing.
All that unusual action created the largest weekly candlestick in months, which is a hammer, a bullish reversal pattern, in particular if it happens after a prolonged down trend. Such is the case here. That would suggest at least a correction within trend, and potentially even a reversal.
Virtually all oscillator type indicators on the weekly chart of USD-JPY show divergences, suggesting that this pair is severely oversold. This gives the hammer more influence and a higher probability for a correction. Chances are, that the price will test the main trendline, around 83.00 – 84.00, and if that is broken, move much higher.