(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; downtrend lines in red; chart patterns in yellow; Fibonacci retracement levels in grey; 100-period simple moving average in light blue.)

2/21/2008 – USD/JPY – Today’s Chart of the Day is all about inverted flags. Within the larger downtrend channel on the USD/JPY daily chart, as shown, recent bear runs have been marked by several inverted flag retracement formations. These patterns are represented on the chart by the yellow upside-down flags. Flags are very common technical occurrences on currency charts, and are most often considered continuation formations. That is, from a purely technical perspective, they often indicate an impending continuation of the previous trend upon breakout/breakdown of the flag. As shown on the accompanying chart, the last two downswings within the overall downtrend channel have been characterized by rather clear inverted flag patterns which have resulted in continuations to the downside. Currently, the pair is displaying yet another flag-type formation (represented on the chart by the dotted yellow lines) which has yet to break as of this writing. It is also of interest to note that in this most recent upside retracement, price stalled at the key 38.2% Fibonacci retracement level (the high-to-low retracement span being measured from the swing high on 12/27/2007 to the low point of the current flag reached on 1/23/2008). If a breakdown of the current flag indeed occurs, the next major support to the downside resides around the last low at approximately 105.00, and then further down at the bottom support line of the current downtrend channel.

James Chen

Chief Technical Analyst

FX Solutions

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