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Today’s Trading Edge: USD/JPY – Three Drives to A Bottom

Posted by Edward Moya on Jan 27, 2014 10:04:00 AM

WWM USDJPY JAN 27 2014

On January 13th, I highlighted that the bullish trend for USD/JPY was facing a big pullback and that price could see a decline towards 103.25 and 102.25.  The 240-minute chart shows that after respecting the 23.6% Fibonacci retracement level of the October 7th to New Year’s Day move, the bullish bounce stalled at 104.78 and targeted a new bottom that coincides with both a three drives to a bottom pattern and the 38.2% Fibonacci retracement level.

Last night’s opening provided a squeeze that made a low of 101.74, before price quickly returned to last week's closing levels.  The bullish recovery is still fragile and traders should be very cautious on long positions if we see a return to last night’s lows.  The dollar is ripe for a rally, but may have difficulty breaking out above the 104 region. 

So far the fundamental headlines mostly support a more optimistic start to the trading week because we did not see a disaster happen with China Credit Trust, Caterpillar, the world’s largest mining and construction equipment company had a solid fourth quarter, business climate improved in Germany, and U.S. stocks opened higher.  Immediate upside targets include 104.00 and then the 105.50 price barrier.  If risk-off hits the financial markets, key downside support falls at the 101.00 handle which is also the 50.0% Fibonacci retracement.       

Price had an initial selloff after a disappointing 10am EST. New Home Sales release and we will only look to go long if price is able to recapture the 102.75 level. 

The trade: Buy USD/JPY at 102.75 with a stop loss at 102.25 and a take profit at 103.75.  The Risk/Reward Ratio is 1:2

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

 

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