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
WorldWideMarkets Online Trading