I've read that a diamond in an uptrend presages a reversal -- the initial breakout is bled off by profit taking, volume drops off as rallies are capped by sellers taking advantage of lingering bullish sentiment. Then a breakdown once buyers realize the top is in for the foreseeable future.

My feeling with the price action last couple days is 108 will be tested and broken soon when buyers outside of the Japanese importers get tired of rallies being stalled out repeatedly. May be very similar to the sell down to 104 we saw at the end of the 108.60 top. I would sell a break of 108.

Also, my weekly chart is (so far) showing a Stoch 40,3,3 (close basis) cross down beginning from overbought levels. We may see a pretty steep correction in the next couple weeks. And it will be the third peak of the uptrend, which suggests to me the beginning of a 3-wave correction of the whole move up. Unless there is suddenly great news, I would say 110.65 is going to be a top for a while (perhaps a long time.) If a rally doesn't break to a test of 110.50-60 soon, it will be given up on.

I feel that way too. Looks like it's forming a temp head & shoulder which may test the 108 resistance. Given the dollar pares loss against yen as durable goods orders advance, it seems a down trend is bouncing around.

Congestion seems to be dominating the majors (though the GBPUSD recently broke below a 7 year fib). I think there is going to be a market-wide dollar breakout relatively soon and the pressure building up to this move is best seen in USDJPY. The pair has pushed into a very tight wedge and levels of support and resistance are clearly defined.

Now we just need to know direction. The dollar index broke a long-term descending trendline, so there is directional bias there. However, I'm concerned that the second quarter GDP numbers won't carry through to the second half and the financial sector is on the edge of another major crunch (which would be a problem for the US dollar which is doubled up by carry).

What's the consensus? Bullish or bearish breakout for USDJPY. I'm going to say bullish until we see a specific bank flatline.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Tough call at this point after the GDP news. I found it perplexing that there was no spike higher on the order the past three rallies that we saw since the 108.15 low. Either there was very large selling into the rally or there for some reason wasn't much buying despite the sell-off in commodities, etc. On the face of it, it would mean sellers are overcoming buyers. Perhaps the "smart" money knows the GDP number is a red herring and were happy to sell into the retail crowd buying it. But it is such a divergence from is what is happening in the other USD crosses.

I think I am still leaning to a short bias until there is a break of 110. At that point, I would think another breakout higher would be signaled, or at the least another try at 110.60s. But right now we are instead seeing testing into 108, and now with what is looking like a lower high. 109.70 got hit pretty hard.

Playing the range is definitely getting claustrophobic. After this cycle, I will be out waiting to see what will happen. I have entry orders on both sides of it to catch some of the move.

EDIT: Could this be a descending triangle forming?

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Well, so far my "gut feeling" last Wednesday at the 108.12 bottom is coming to pass. We rallied back to test 110.30 and now have ground down amid much impulsive buying to the point of a breakdown. But will we now begin the 3-wave correction of the entire uptrend? I have been wrong on this at the previous top corrections. But I think now a first wave down is confirmed on the weeklies. They will be putting in a cross down on the stochs and the first significant close below the 5-week EMA (109.15) since May, assuming no amazing rally into the close.

How much pressure do we think there would be on the USDJPY from a commodities spike caused by Gustav? Let's suppose oil production and pipeline infrastructure is disrupted for a month. If this happens, I think it will be enough to break the range and send us into a tailspin next week.

If this pair breaks 108, I bet we will see 104 not too long afterwards. Maybe even this week.

My chart on this pair has turned decididly bearish. I am going to wait for a rally to the mid 109's to sell. I cannot tell if this is going to be a major move to the downside or not. I am not getting a clear reading concerning this.

Japan's PM Fukuda resignsed, jpy was sold. What level can usd/jpy rally to? There is still a gap occurred at the open of this week (last week close 108.74, this week open 108.41). Should at least fill the gap?

I keep thinking it should make it back to the 61.8 fib (109.70-107.60) to test 109 again, but I am beginning to wonder. When the New York traders couldn't mount a decent rally back through 109 Friday, I turned to downtrend trading from there. Made about 100 pips all told in this thin trading Sunday night and today. Maybe we'll get a good pop when New York opens tomorrow. I wouldn't bet on 109 breaking. But it's possible if US markets go crazy. Would expect more selling into it. The carry trade unwind looks to be accelerating.

Just checking the psychology of this board. Nice.

Short at 108.93 after the news and a break of 109. If we can break 108.70 then we have a fair while to do go down from there.

Well it just broke 108.70, DROP!!!!

GL

Yep. I had put on a sell order before going to bed last night to go in short @ 108.875. Took profit already as I've made more than I usually do in a week so far and I don't want to jinx it. Probably it'll crash down to 108 again and I'll fume. Hah, hah.

wow, that was a bounce from 108.55. I'm out for +30 pips, covered a couple of losses earlier today.........

Nicely done Firewalker, must of had a good day yesterday!!! I'm too busy at work at the mo so have to dip in and out.

GL

Should push a little higher?

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