USDJPY: Bullish momentum tests medium term bearish resistance line in current session:
The medium term daily candle chart below shows the USDJPY pair reaching a medium term bearish resistance line (point 7 on chart) in the current session coinciding on the high for the day at 98.79 and trading just off - near 98.71 as of publication. If this resistance line (point 7) holds, then the pair may return to the short term support line (point 5) that enabled its recovery after finding support on a long term bullish line (point 4) in the second week of August and which was anticipated in a previous article on the pair in late July 2013.
The long term bullish channel (point 6) which failed back on June 6th 2013 appears to have shifted as can be seen by the equidistant parallel slope of the newly developed short term bullish channel (point 5) which may provide a continuation. If the support line of this channel (point 5) fails, then a steep bearish continuation may follow consistent with the angle of previous short term bearish momentum (point 1) or a less aggressive bearish resistance line may develop (such as point 2) either with a target of the long term bullish support line (point 4) the former of which could intersect by the end of August near 96.00.
If the medium term bearish resistance line (point 7) fails - either in the current session or in the very short-term - a steep short term bullish support line (point 3) may continue with a trajectory of the long term bearish resistance line (point 8) by the end of August near 102.73. A less aggressive bullish continuation could also follow after a breakout to the upside of the medium term resistance line (point 7), with support found upon the lower line of the short term bullish channel (point 5), in the event that the steep line (point 3) cannot be maintain. A sideways market could also occur over the next few trading sessions under the medium term line (point 7) before a break-out or reversal.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 98.79 with a Limit to take profit @ 99.90 and a stop-loss @ 98.17 Risk/Reward Summary: Limit risk = + 111 pips profit / (-62) Stop-loss risk = Gain to Loss ratio = 1.79
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 97.59 with a Limit to take profit @ 96.31 and a stop-loss @ 98.16 Risk/Reward Summary: Limit risk = +128 pips profit / (-57) Stop-loss risk = Gain to Loss Ratio = 2.24
Medium term daily candle chart: