The inverse relationship between USD/JPY and Gold

Dollar Yen trend reversal could spell trouble for gold bulls.

The  following series of charts highlight the inverse correlation between

USD/JPY and $Gold as well as what may be lining up from a technical perspective

All charts daily time frame

Chart 1: $GOLD

While $Gold (chart1 above) has reversed from its short term uptrend into a short term downtrend, we see the USD/JPY (chart 2 below) as having reversed from a short term downtrend into a short term uptrend.

Chart 2: USDJPY

Whats next?

Currently the USD/JPY (Chart 3 below) looks to be breaking out of inverse head and shoulders pattern (IHS) labelled L, H and R.  

The IHS pattern highlights change in a directional trend i.e. moving from a series of lower highs and lower lows to a series of higher highs and higher lows.

The suggestion from the pattern is for further gains in the USD/JPY currency pair.

There is little in the way of resistance for USD/JPY till around 113.65, which becomes the initial upside target.

A close below the right shoulder at 111.95 is used as the failure level of the upside move predicted by the IHS pattern.

Chart 3: USD/JPY

By implication $Gold looks poised to continue to decline with USD strength.

There is a short term downtrend in place and the blue parallel lines mark bear flag suggesting a further downside continuation of this trend.  

Close below 1240 would call for a relatively quick move 1220 and 1215 respectively.

To restore faith in upside momentum (break short term downtrend) close above 1260 is needed.

Chart 4: $GOLD

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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