- AUD/JPY nearing the breakout point of ascending wedge
- A few scenarios to take into consideration
AUD/JPY has been in the process of building an ascending wedge pattern since the beginning of June, with it now close enough to the apex it could break at any time. Resistance at the top of the pattern dates back to the December 2019 swing high.
Given the upward bias since the March low and ascending nature of the pattern (flat top, rising lows), it is most probable we see a breakout to the upside. If we see a clean daily close above 76.87 then a bullish breakout will be confirmed.
Wedge breakouts can be tricky at times…
There is, however, one roadblock upon a bullish break that could thwart a larger advance and even potentially cause the breakout to fail. There is a clean trend-line running down from 2014 right around 77.50, where there is also a series of swing lows from early 2019 in the same vicinity.
It will be important to pay attention to how price behaves at that juncture, because while a sizable area of resistance, the rise out of the ascending wedge may provide enough power to push the pair on through. If, however, we see a rejection at resistance and a decline back below the breakout point and underside trend-line of the wedge (~76.20), then the failed breakout could lead to a powerful reversal lower.
It is of course entirely possible the pattern is triggered by breaking the underside trend-line from here, in which case we would also have a bearish scenario in play. And that initial break could also turn into a fake-out which subsequently turns into a reversal higher.
All-in-all, to make things simple it is generally most prudent to run with the initial breakout with in mind that we may have to reverse course in the event the pattern fails. In any event, given the coiling price action and proximity to the apex a sizable move looks to be on its way.
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Check out the Q3 USD Forecast
AUD/JPY Daily Chart (ascending wedge near apex)
AUD/JPY Weekly Chart (2014 trend-line)
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—Written by Paul Robinson, Market Analyst
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