USDJPY: Price Consolidation Narrowing into Developing Triangle Formation
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) pair and is trading at 98.75 after erasing the earlier drop after today sessions opened.
The pair is near the medium term bearish resistance line (point 7 on chart in gray) and the 50% Fibonacci retracement level appears to have provided some support earlier today and concurrently USDJPY has found support along a short term bullish trend line (point 5 in green on chart). The pair may have also escaped a the resistance line of a developing bearish trend line (such as point 9 in red).
From a longer term view, the prices of the USDJPY pair have been narrowing into a developing triangle as they continue to consolidate and as can be seen in a previous article on the pair. The two trend lines that make up the developing triangle are the long term bullish support (point 4 in aqua) and the medium term bearish resistance (point 7) which are set to intersect around late November. Unless there is a breakout above or below either side of these two lines, the prices may remain range bound within this narrowing channel.
If the current medium term bearish resistance (point 7 in gray) can be overcome, the pair may follow up a steep bullish trend line (such as point 3 in blue) after a successful breakout. If instead a reversal occurs (on point 7) a return to the the short term bullish line (point 5) may follow and with further support if the developing bearish trend line (point 9) provides a path for the USDJPY to target the long term bullish support line again (point 4) near 97.50 in coming days. Further support may be found near 96.01 if the long term bullish support line were to fail.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 99.01 with a Limit to take profit @ 99.44 and a stop-loss @ 98.79 Risk/Reward Summary: Limit risk = +43 pips profit / (-22 ) Stop-loss risk = Gain to Loss ratio = 1.95
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 98.15 with a Limit to take profit @ 97.79 and a stop-loss @ 98.30 Risk/Reward Summary: Limit risk = +36 pips profit / (-15 ) Stop-loss risk = Gain to Loss Ratio = 2.4
Medium term daily chart: