USD/JPY & Gold conforming to the Technical Assumptions

The currency pair is now trading in overbought territory.

Spot gold has conformed to the technical assumptions (and inverse relationship with the USD/JPY) in our previous note, as the bear flag (highlighted blue) did well in predicting the continuation of the short term down trend. The break of the 1240 level saw the 1220 initial downside target realised quickly.

At the moment gold is looking oversold, and perhaps some geo political risk (North Korea missile launch?) could see a short term rebound in the commodity price.

Should this rebound scenario occur, the firm downtrend in place suggests shorting into strength rather than taking a long view (unless there is a clean break of the 1240 level).

Alternatively a break of the 1215 level would be even more bearish as it would show a hurried continuation of the downside move with 1195 being the ultimate near term target. 

Inversely, the USD/JPY has moved well towards the 113.65 upside target alluded after the breakout from the inverse head and shoulders pattern (labelled L, H & R).

The currency pair is now trading in overbought territory, although in principle the approach now is similar to that in Gold i.e. we are not looking to trade against the prevailing trend. With this in mind, trend followers might look to a pullback towards 112.36 for long entry, having ratchetted the stop loss/failure level to a close below 111.78. Targeting a move to 113.65, a break of which further favouring a move to 114.34. 

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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.