Inverse Head and Shoulders on CHF/JPY
This is the opportunity that I have been waiting patiently for over the past few months. Since the apparently successful Swiss National Bank (SNB) floor under EUR/CHF at 1.2000, and the repeated failure of the Bank of Japan (BoJ) to do anything about the strength of its own currency, one question has been itching me: what does the SNB have that the BoJ doesn't? The answer, as far as I can see is, NOTHING. I don't profess to know whether the SNB will ultimately be successful in its intervention to stem the rise of its currency, nor do I know whether the BoJ will. What I am trying to exploit here is the idea that either both central banks will succeed, or they will both fail. Since the SNB has found early success, and the BoJ not, CHF/JPY fell off a cliff. According to my theory, this can't last - either the SNB floor will fail due to capital flight out of the Eurozone (remember the debt crisis?), OR the BoJ will ultimately succeed in weakening the JPY (with the help of some kind of miraculous return to growth, and subsequent interest rate increases in the US).
All this stuff is on display on a Daily CHF/JPY chart. The fall, the inverse head and shoulders, and now a topside breach of said inverse head and shoulders. It looks like a very nice setup indeed - we should be seeing 91.00 in the coming months.
UPDATE (26-02-2012): Our target has been hit in spectacular fashion (see chart below). There is clearly more upside to this pair, but we have closed our entire position at 91.00 and are expecting some pullback from this level, as there is a significant resistance level just above us. We may re-enter long positions if/when this pullback does occur, depending on market conditions at the time. Further analysis will be posted in separate articles. For now, we are signing off with the words "Ka-ching!".
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