USDJPY: short term bearish momentum confirmed after failure on bearish resistance
USDJPY has been quite volatile with the trend mixed over the past few months as we can see by the several large nearly 1,000 pip swings in the chart below. This could be attributed (at least partially) to the failure of the long term bullish channel (point 6 on chart) to contain the upwards momentum which had been gaining since the 3rd Quarter of 2012 when the Yen was trading in the mid-70’s against the US Dollar.
The catalyst for the breakout below the long term bullish channel (point 6) was likely the failure on the long term bearish resistance line (point 8) which reversed the trend and put USDJPY on a path down a short term bearish line (point 1) coupled with medium term bearish resistance (point 2) and a less-bearish channel (point 5) all aiding the descent.
Eventually support was found on a long term bullish support line (point 4) and the USDJPY returned up a short term bullish line (point 3) and a support line parallel to the long term bullish channel and eventually found resistance on a medium term bearish line (point 7) where it was unable to break above and eventually lost upwards momentum returning down a steep short term bearish line - similar in slope to previous such lines observed (point 1) in this chart –and currently trading near 97.90 (as of publication).
Several of these aspects were discussed in a previous article on the pair in early July 2013
Unless a breakout to the upside of the current steep bearish resistance line (point 1) can occur, or the medium term resistance line is re-tested, a bearish continuation may be likely with a target of the long term bullish support near 95.00 over the short term.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 98.21 with a Limit to take profit @ 99.20 and a stop-loss @ 97.60 Risk/Reward Summary: Limit risk = +99 pips profit / (-61) Stop-loss risk = Gain to Loss ratio = 1.62
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 97.62 with a Limit to take profit @ 96.80 and a stop-loss @ 98.19 Risk/Reward Summary: Limit risk = +82 pips profit / (-57) Stop-loss risk = Gain to Loss Ratio = 1.44