USDJPY: Pullback Looming After Volatility Rises, Repeat, Higher-High To Follow
The medium term daily candle chart below shows the United States Dollars (USD) versus the Japanese Yen (JPY). This pair is known as USDJPY (or Dollar-Yen). Today the pair is holding near the mid-range of the session near 102.22, as two major holidays unfold across the globe, after moving over 100 pips higher in yesterday's bullish trading session.
Last time the USDJPY pair was covered in the Ideas You Can Trade series in the WorldWide Markets Community, the 23.6% Fibonacci level (point 10 in white) and long term bearish resistance line (point 8 in red) where highlighted as well as a stair-step like formation that was predicted to continue. The surge of yesterday confirms that analysis when compared in the previous post, as the USDJPY has been a subject of interest to traders following its recent increased volatility and has been covered often in this series in the past few weeks.
The bullish trend of the last month continues up the developed short term bullish channel (point 5 in green) and may continue higher towards 102.50 where resistance could exist. However, before this happens, yet another pull-back could follow and repeat in order to pave the way for a subsequent steep bullish move (such as along point 3 –which could develop).
If a pullback is more pronounced, the long term bearish resistance line (point 8) may now act as support, with the 23.6% Fibonacci line just below it as further support to deter any such pull-back from around current levels. Higher scenario could lead to a higher-high following if the stair-step formation continues.
Below are examples of how to trade a bullish continuation or a bearish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 102.39 with a Limit to take profit @ 102.50 and a stop-loss @ 102.29 Risk/Reward Summary: Limit risk = +11 pips profit / (-10) Stop-loss risk = Gain to Loss ratio = 1.10
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 101.88 with a Limit to take profit @ 101.67 and a stop-loss @ 102.07 Risk/Reward Summary: Limit risk = +21 pips profit / (-19) Stop-loss risk = Gain to Loss Ratio = 1.10
Medium Term Chart: