AUDJPY: Bearish momentum continues in short term channel
The medium term chart below shows AUDJPY in the current session testing near the resistance line of a short term bearish channel (point 2 on chart) coinciding near the high of the day near 87.85 (as of publication) after finding support at yesterdays low.
Since late July when we discussed in a previous article likely continuations, there was a decisive move lower after failing to hold medium term static support (point 1) and long term static support near 89.00 (point 4). Both static support levels then became resistance and then the pair followed down the upper line of a short term bearish channel (point 2).
A short term bullish support line (point 7) could develop if a breakout to the upside of the short term channel (point 2) occurs with a target of the long term static resistance line at 89.00 (point 4- previously support) and the resistance line of the medium term bearish channel (point 3) just above it.
The trend still looks bearish with the trajectory of the short term bearish channel (point 2) pointing towards the long term bullish support line (point 5) which will intersect closer to 83.50 where long term bearish resistance (point 6) will also converge and which could provide a stronger reversal of the medium-term bearish momentum.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 87.99 with a Limit to take profit @ 88.91 and a stop-loss @ 87.59 Risk/Reward Summary: Limit risk = + 92 pips profit / (-40) Stop-loss risk = Gain to Loss ratio = 2.30
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 86.99 with a Limit to take profit @ 85.65 and a stop-loss @ 87.44 Risk/Reward Summary: Limit risk = +134 pips profit / (-45) Stop-loss risk = Gain to Loss Ratio = 2.98