The Wrong Side of Halfway

It has been a trader’s year so far on the US Dollar/Japanese Yen currency pair (code FXUSJY in ProfitSource). Relatively flat since the November, 2010 low, the Dollar/Yen experienced a wild fall after the Japanese tsunami in March, 2011 followed by a sharp rise into the April high. Since then, this market has struggled to go anywhere, as illustrated in Chart 1 below.

Chart 1

click to enlarge

May and June, 2011 were both quiet months, offering only small returns for traders and investors alike. Currently, the Dollar/Yen seems to be just killing time, waiting for something to spark its next move, either up or down.

I have been of the opinion all year that this market is closer to a low than a high and that we will see the US Dollar make an attempt at a decent rally.

If we look at one of W.D. Gann’s Ranges Resistance Cards (as taught at Safety in the Market’s Three-Day Interactive Trading Workshops) we can see that the US Dollar is trading just below the 50% milestone, or halfway point, as shown in Chart 2 below.

Chart 2

click to enlarge

Until the US Dollar can break back above this 50% milestone at 81.35, I would be very reluctant to buy this currency. In fact, a confirmed Double Top beneath this 50% milestone may prove to be an excellent selling point.

An examination of the history of the US Dollar/Yen suggests major rallies generally begin after a sharp spike into a low. Some examples of this are shown in Chart 3 below.

Chart 3

click to enlarge

A failure to rise above 81.35 would indicate a very good chance of another move down and if a low is to form, history tells us a spike down into that low is certainly not out of the question.

I will be presenting a session on Prime Numbers on the US Dollar at the Safety in the Market FX and Commodities Summit 2011 in Sydney on July 30-31, when I will show how just one number on the US Dollar/Yen has helped to call almost every major turn in this market over the last five years! And of course we’ll look at how to use that information for profit in the future, so make sure you come along for what should be a fun and informative weekend.