Yen Critical Decision Point

Yen Inverse H&S Bottom (Red Neckline) vs Blue Falling Megaphone

Yen Inverse H&S Bottom (Red Neckline) vs Blue Falling Megaphone

Yen futures have completed an inverse head and shoulders bottom with a megaphone right shoulder (silver) on the drop out of last August’s high.

The yen has just retraced to VWAP (the volume-weighted average price) of that megaphone right shoulder and is now legal for a breakout upwards from the inverse H&S (purple scenario).

But if the yen can break down through VWAP for a trip to the megaphone bottom, if will put in a new low for the move out of the August high and confirm the blue falling megaphone.  That would be nice to see because it would usually provide a strong set-up for a melt-up to the formation top (green scenario).

The yen could also bog down forming megaphones inside megaphones across the silver megaphone VWAP (pink scenario).  This would usually mean a continuation triangle before a move to a new low to complete a wider falling megaphone.

US Dollar Update

DX is at the VWAP of its Long-Term Megaphone (Red)

DX is at the VWAP of its Long-Term Megaphone (Red)

The dollar is hung up at the VWAP (volume-weighted average price) of a very long-term megaphone that began forming in the late 1980s (red on chart).  It’s also paused just above the breakout point from a falling wedge top connecting the 1985 and 2002 dollar highs.

DX Megaphone (Purple) vs Triangle (Green) Scenario

DX Megaphone (Purple) vs Triangle (Green) Scenario

DX got to its recent high within the red rising megaphone on the second chart.  That high pierced the formation top before reentering and would usually make a new high within the formation before breaking out of it.

Then DX must return to at least the base of the rising megaphone at roughly 93.

It could get there by returning to the blue megaphone VWAP at roughly 95 and starting a new megaphone there (green scenario).  The green scenario could produce a series of new megaphones inside megaphones across 95 to form a big continuation triangle before the dollar continues up to the top of its long-term red megaphone.

But it’s more likely that the dollar will continue through 95 to the bottom of its blue megaphone to form the larger orange megaphone.

US Dollar (DX) Back at Top of Flat-Topped Megaphone

DX is Back at the Top of its Red Flat-Topped Megaphone and is a Favorite to Make Another Trip to its Bottom

DX is Back at the Top of its Red Flat-Topped Megaphone and is a Favorite to Make Another Trip to its Bottom

The DX has returned to the top of its flat-topped megaphone (red).

It has formed a rising megaphone (blue) to get up here.

That means it’s a strong favorite to complete a head and shoulders before a breakout from both the H&S and rising megaphone to return to the bottom of the red megaphone.

From there, the dollar can return to the top of the flat-topped megaphone for a breakout into a big move up, or it can break out through the formation bottom for a return to about 80.

USDJPY Short Set-Up for Big Move Down

USDJPY Rising Megaphone Top with Usual H&S Top with Usual Right Shoulder Bounce Off Wedge Bottom

USDJPY Rising Megaphone Top with Usual H&S Top with Usual Right Shoulder Bounce Off Wedge Bottom

The USDJPY has such a perfect rising megaphone short set-up on its chart that I will be amazed if it doesn’t complete for a big move down.

The red rising megaphone has perfect internal structure.

The classical way for these formations to complete is with a head and shoulders top that carries the price sideways to the formation bottom, and the chart shows a clear H&S.

The right shoulder of the H&S is usually a bounce off the rising wedge bottom, and that’s what has happened here.

There’s nothing quirky like a megaphone right shoulder on the H&S to suggest another leg up the formation bottom–not even on the yen futures contract.

The set-up is to short on the downwards breakout through the H&S neckline and rising megaphone bottom.  The target is the level of the lowest touch on the red rising megaphone bottom.

If you do see the H&S right shoulder start to megaphone after breakout, crossing and recrossing the H&S neckline, a rising megaphone may be forming to carry the USDJPY to a higher high.  Breakouts from complete rising megaphone formations should move down fast and keep moving.

Yen Breaks Out Downwards From Big VWAP Triangle

The Yen has Broken Out Downwards from its Silver VWAP Triangle and Targets the Blue Megaphone Bottom

The Yen has Broken Out Downwards from its Silver VWAP Triangle and Targets the Blue Megaphone Bottom

The yen has broken out downwards from its triangle (silver) across VWAP of the megaphone (blue) it started forming in mid-November.

The target is now the blue megaphone bottom, but the existing guideline will almost certainly be redrawn. You could use a normal triangle target here–the height of the triangle subtracted from the breakout level.

It’s possible but not guaranteed that the yen could put in a false bottom at the level of the previous megaphone low. If you see the yen reentering the triangle, it’s going for that blue megaphone VWAP before reversing and continuing down.

Yen Triangle within Megaphone

Yen Triangle (Gray) within Blue Megaphone is Legal for a Breakout Downward to Redraw Megaphone Bottom

Yen Triangle (Gray) within Blue Megaphone is Legal for a Breakout Downward to Redraw Megaphone Bottom

Yen futures have been working on a megaphone (bright blue on chart) since late November.

In mid-December, the yen starting forming a series of megaphones within megaphones at VWAP of the bright blue megaphone.

When you see a series of megaphones within megaphones at a larger megaphone VWAP, usually a triangle is forming.

That triangle has now formed for the yen (gray on chart) and it’s legal for a downward breakout.

The bright blue yen megaphone would usually make one more trip to the formation bottom to redraw it (usually the first steep line and first two moves within a megaphone get thrown out by the time the formation completes).

The yen has been trying and failing to form bottoming megaphones near the bottom of the gray triangle. The formations either keep getting abandoned incomplete, or complete and break out downwards.

A downward breakout from the yen triangle would be a set-up to short to roughly the new yen megaphone bottom as drawn.

Yen Inverse Head and Shoulders with Megaphone Right Shoulder

Yen Inverse Head and Shoulders with Right Shoulder Megaphone

Yen Inverse Head and Shoulders with Right Shoulder Megaphone

The yen has put in a potential inverse head and shoulders with a megaphone right shoulder.

The megaphone right shoulder has already put in the usual two fake breakouts through the original neckline.

Usually a head and shoulders or inverse head and shoulders with a megaphone right shoulder is a fake H&S or inverse H&S. Usually this potential inverse H&S would take out the low of the head, and that new low would be the head of a real inverse head and shoulders.

However, this rule is not as reliable with inverse head and shoulders patterns as it is with head and shoulders tops. With H&S tops a megaphone right shoulder leads to a higher head over 90% of the time. With an inverse head and shoulders, it leads to a lower head maybe 2/3 of the time.

Yen to Megaphone Bottom

The Yen Cancelled its Potential Rising Megaphone (Bright Blue), Breaking Out Downwards to Navy Blue Megaphone Bottom

The Yen Cancelled its Potential Rising Megaphone (Bright Blue), Breaking Out Downwards to Navy Blue Megaphone Bottom

The yen converted its potential rising megaphone top to a little head and shoulders, then broke out into a trip down to its navy blue megaphone bottom.

That megaphone as drawn is a guideline. The correction could stop a little above it. Watch for some kind of bottoming formation to complete and break out upwards. The target would be at least the navy megaphone VWAP, and possibly its top, though that’s less likely.