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Forex: Ideas You Can Trade - USDJPY Sharp Drop After Exit of Uptrend

Posted by Steven Hatzakis on Jan 14, 2015 8:09:00 AM

USDJPY: After Failing To Regain the Bullish Channel On Monday, New Bearish Channel Entered 

The daily candle chart below shows the medium term price history of the United States Dollar (USD) versus the Japanese Yen (JPY). This currency pair is known as USDJPY, and is trading near 116.34 around time of publication today - and fresh off session lows.

This pair was last reviewed in Ideas You Can Trade just last week when USDJPY was hanging on the lower support line of the medium term channel (green lines on chart below), and a pullback was looming. 

Since then the pair briefly recovered but failed to break above 1.2000 and the support line of the uptrend couldn't help either, then on Monday another attempt to regain the channel failed and USDJPY has since moved sharply lower in the last three days reaching 116.14 in the last 30 minutes (around time of publication).

Looking at the first chart below it appears that USDJPY has made a clear exit of the bullish channel, and has transitioned into a new bearish channel (point 1 in magenta color)- having just entered from the upper line (which had been acting as bearish support in recent weeks). This means that if the change in trend continues within this bearish channel, the next downside target of 115.00 may be very close. 

While the USD continues to make multi-years highs against major pairs in recent days, it hasn't against the JPY, as the Yen strength is winning. Therefore, unless the support line of the bullish uptrend is regained in the very near term and 1.2000 revisited, a bullish continuation looks unlikely. The additional long term monthly candle chart below shows that this pullback could be a false-one if the steep uptrend is resumed - from a monthly candle chart perspective, which could be confirmed as the following month unfolds.

Below are example of how to trade a bearish continuation or a bullish reversal:

 1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 117.45 with a Limit to take profit @ 118.35 and a stop-loss @ 116.97 Risk/Reward Summary: Limit risk = +90 pips profit / (-48) Stop-loss risk = Gain to Loss ratio  = 1.87

 2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 115.99 with a Limit to take profit @ 115.02 and a stop-loss @ 116.56 Risk/Reward Summary: Limit risk = +97 pips profit / (-57) Stop-loss risk = Gain to Loss Ratio = 1.70

Medium Term Daily Candle Chart:

USDJPYDaily January 14 2015 note

Longer Term MONTHLY Candle Chart:

 USDJPYMonthly jan 14 2015 LONGTERM

Topics: $USDJPY, YEN, forex trading, US Dollar, Dollar Yen, technical analysis, Japanese Yen


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