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Yen Diamond: Friend Or Foe?

11/19/04 08:15:46 AM
by Chris Manuell

The Japanese yen strength has been on the radar of most market players due to the currency's wide-ranging implications from Japanese exporters to US Treasury traders. The market appears at an important juncture.

Security:   XJY
Position:   N/A

The yen completed a diamond top formation on the weekly chart earlier this year, and despite the failure to reverse sharply from this bearish formation upon completion, its use as a forecasting tool is not redundant. The ability to recycle the pattern can help in gauging the tone of the market. As discussed by David Penn in "The Euro's Diamond Top," these patterns are oft to break out on the upside and test the top of the formation. The top of the pattern often proves to be obstinate resistance. This test of the top may also provide further resonance, as a failure to move through the level could encourage talk of a potential double top. On the flipside, a decisive violation of this upper resistance point at 96.58 would portend a much higher yen with the complete failure of the diamond pattern.

The average directional movement index (ADX) is sneaking off a low base and ominously targeting the pivotal 20 level, which usually suggests the market is poised for some strong directional movement. The moving average convergence/divergence (MACD) histogram is still sloping higher, which suggests bulls have enough legs for another upward thrust.

Figure 1: Weekly Japanese Yen
Graphic provided by:
In summary, the yen is poised to make an important test of March highs, which will provide the trader with an important marker for the intermediate direction for the yen and other currencies.

Chris Manuell

Chris Manuell spent 7 years as a futures sales/trader for a large investment bank and more recently as a technical analyst for an independent research company. He has a bachelor of economics and graduate diploma in applied finance & investment. Currently enrolled in the CMT program with the MTA.

E-mail address:

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Date: 11/20/04Rank: 4Comment: 
Date: 11/23/04Rank: 3Comment: 
Date: 11/23/04Rank: 5Comment: Very clearly written. Perhaps the situation is also compatible with clear analysis and presents a simpler case than the one analyzed by David Penn. I will look at David s article again and again in order to understand the mechanics.

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