USDJPY: Pullback Confirmed, Uptrend to Continue if Support Holds
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 steeply lower and near session lows and trading around 102.39 (as of publication), following a drop of 140 pips after reaching today's high where resistance was encountered at 103.36.
In the previous post about the USDJPY, in the Ideas You Can Trade series, last week, a pullback was noted as likely given the steep uptrend and stair-case formation that has been in place over the short-to-medium term, as well as the 102.50 level which was breached shortly after publication.
Since that pullback has now occured aftering first pushing higher (since the above mentioned post), if USDJPY cannot hold upon the lower support line of the short term bullish channel (point 5 in green on chart) which has contained the bullish price action of recent months, then a steep dive could follow with prices heading towards the long term bearish support line (point 8 in red) just below which is set to coincide near the 23.6% Fibonacci level (point 10 in white).
If support holds today and/or in coming days on the short term bullish line (point 5) then the 0% Fibonacci level (point 10) just above, may become a new target if the previous high of 103.36 (point 2 in yellow) can be overcome - as it may provide resistance. Accordingly, traders may be looking for entry/exits above and below these levels - if a decisive breakout or reversal follows.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 103.41 with a Limit to take profit @ 103.71 and a stop-loss @ 103.17 Risk/Reward Summary: Limit risk = +30 pips profit / (-24) Stop-loss risk = Gain to Loss ratio = 1.25
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 101.91 with a Limit to take profit @ 101.35 and a stop-loss @ 102.11 Risk/Reward Summary: Limit risk = +56 pips profit / (-20 ) Stop-loss risk = Gain to Loss Ratio = 2.8
Medium Term Chart: