USDJPY: In Middle of Fibonacci Levels and Slope of Support Edging Lower
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) and trading at 102.67 (as of publication) after opening higher today.
The pair has traded lower in three of the last four sessions after reaching a high of 103.91 right above the 0% Fibonacci retracement level (point 10 in white on chart) and is now in the middle of it and the 23.6% Fibonacci retracement line just below.
Although the pair could spontaneously recover via a short term bullish trend line (such as point 3 in blue), unless the previous high of 103.91 can be overcome, the directional play could be less certain.
The reason for this is that clearly the short term bullish channel (point 5 in green) is no longer relevant and the bullish momentum has been countered with a gradual bearish resistance that has developed in the last three weeks. Unless support can be regained higher - which would indicate a recovery on the uptrend of recent months - then its more likely that the pair will test the 23.6% Fibonacci retracement (near 101.00) first in order to gather support before pivoting higher later (unless that support arrives sooner).
The 0% Fibonacci Level was noted as a target in the last post about the USDJPY in the Ideas You Can Trade series, it still may become a testing grounds of the pair as its remains the only barrier for entry to the upside of 104.00. A monthly candle chart is also provided further below for comparison of the trend over a longer time period (since 2007).
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 104.02 with a Limit to take profit @ 104.55 and a stop-loss @ 103.71 Risk/Reward Summary: Limit risk = +53 pips profit / (-31) Stop-loss risk = Gain to Loss ratio = 1.70
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 102.31 with a Limit to take profit @ 102.01 and a stop-loss @ 102.55 Risk/Reward Summary: Limit risk = +30 pips profit / (-24) Stop-loss risk = Gain to Loss Ratio = 1.25
Medium term daily candle chart:
Long term monthly candle chart: