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Forex: USD/JPY building a 'complex' topping - FXA

After early evidence that the USD/JPY may be building a top above 94.00, the recent rebound off the 20-day EMA back to 94.00 is still not an indication that the topping formation is over, says FXA partner David Solin, who think we are still at "an ideal area to form an important top for at least a few weeks/month, and even longer."

Mr. Solin expands: "Additionally the market is overbought after the last few months of sharp gains, while technicals have turned negative, adding to this view of a topping. Also, tops after an extended surge tend to be more "complex" (versus a straight reversal), as those with large profits start to lighten and those who missed the move buy."

While David speculates that a possible "head and shoulders" pattern fits the view of a more complex topping, he warns, "everyone is looking at this pattern develop, and in turn raises the risk that this "ideal" scenario does not work out." If price breaks higher, in that case, he points at a "rising wedge forming (another "complex" topping pattern)".

His strategy/position has currently a preference for the head and shoulders pattern, saying that "with the market near the area of the right shoulder, would short at present market value, although given the risk for temporary new highs, would initially use a wide stop on a close 25 ticks above the ceiling of the potential rising wedge (currently at 95.50/60, just in case)."

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