By: Mike Kulej
The Australian Dollar has become one of the most popular currencies to trade. Its volume increased dramatically during the past couple of years, making it as liquid as the so-called “major”. Because it has appreciated strongly during this time, it is at historically high valuations, which means it has good size daily movements, measured in pips.
Virtually all of the AUD pairs are good trading instruments, including the AUD-JPY, which rallied from 74.50 to 90.02 after the earthquake in Japan. Since then, the price has settled into a congestion zone, without much of an indication about its next major move.
Currently, this congestion is becoming even tighter, with every price swing becoming slower. In the process, the daily chart of the AUD-JPY has developed a pennant formation, a clear sign of indecision. This pair is waiting for a catalyst, which would start the next move.
Because the price is nearing the apex of the pennant, we should realistically, expect increased activity in soon. A breakout in either direction should be confirmed by technical indicators, like the MACD or the RSI. These tools ought to follow the price immediately, away from their respective neutral zones, where they are now. For the AUD-JPY, a breakout from this pennant could easily translate into a 400+ pips price swing.