USDJPY: Prices Consolidating as Bearish Resistance to Converge with Long Term support
The medium term daily candle chart below shows the United States Dollars (USD) versus the Japanese Yen (JPY). This pair is generally known as USDJPY (or Dollar-Yen) and is trading just off session highs of 99.28 and currently near 98.84 (as of publication).
Following a successful breakout above the medium term bearish resistance line (point 7 in grey on chart), and then resistance encountered along the upper line of bullish short term channel (point 5 in green), the USDJPY pair has returned to find support on the medium term bearish line (point 7) and 50% Fibonacci level (point 10 in white), since a previous article earlier this month where these were all noted as likely continuations.
Right now the pair appears to be finding difficulty in breaking above the resistance line of a short term bearish channel (point 9 in red) which is developing. A steep bearish line (such as point 1 in magenta) has been plotted as a theoretical resistance line and which could provide a continuation if the current short term bullish support (point 5) failed. If this happened resistance could be found again on the 50% Fibonacci level (point 10), medium term bearish line (point 7) just below it or long term bullish support (point 4) further below.
If the current support line (point 5) holds, and the resistance encountered (along point 9) can be overcome, then the 38.2% Fibonacci level (point 10) may be targeted with further resistance near 100.00 and near the upper line of the short term bullish channel (point 5) and 23.6% Fibonacci level (also point 10 -higher).
The trajectory of long term bullish support (point 4) is expected to converge with the medium term bearish resistance line (point 7) by the beginning of October 2013 and could therefore serve as dual support to prevent a break to the downside – if prices trade down towards 97.00 and close to the 61.8% Fibonacci level by that time.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 99.55 with a Limit to take profit @ 99.99 and a stop-loss @ 99.19 Risk/Reward Summary: Limit risk = +44 pips profit / (-36) Stop-loss risk = Gain to Loss ratio = 1.22
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 98.42 with a Limit to take profit @ 97.51 and a stop-loss @ 99.02 Risk/Reward Summary: Limit risk = +91 pips profit / (-60) Stop-loss risk = Gain to Loss Ratio = 1.51
Medium term daily chart: