USDJPY: Breakout or Reversal Could Follow as Pair Approaches Top of Trading Range
The medium term daily candle chart below shows the United States Dollar (USD) versus the Japanese Yen (JPY), known as USDJPY, and trading near 103.76 around time of publication today
For most of 2014 the pair has been stuck in a narrow trading range between 100.74 and 104.10, with a lack of volatility attributed to lower trading volumes in this major currency pair. Last time USDJPY was reviewed in the Ideas You Can Trade series it was approaching the lower line of that range near 101.00, and shortly thereafter found support on 100.74 yet again before returning higher towards current levels.
With the USDJPY nearing the upper band of the trading range, a breakout above 104.00 could signal a bullish continuation. While 104.10 remains the last high for the year (YTD high is 105.43), a close above 104.00 would be considered very bullish, as mentioned in a previous post, when a falure to close above 104.00 prompted a bearish reversal.
If 104.10 cannot be overcome, a bearish reversal would mean the current sideways range would persist, with a possible return towards 102.35 near the middle of the range.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 104.11 with a Limit to take profit @ 104.51 and a stop-loss @ 103.74 Risk/Reward Summary: Limit risk = +40 pips profit / (-36) Stop-loss risk = Gain to Loss ratio = 1.11
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 103.44 with a Limit to take profit @ 103.06 and a stop-loss @ 103.77 Risk/Reward Summary: Limit risk = +38 pips profit / (-33) Stop-loss risk = Gain to Loss Ratio = 1.15
Medium term daily candle chart: