The first full trading week of 2016 has the Japanese yen significantly stronger against its major trading partners on safe haven flows. With stocks plunging all over the world and emerging market currencies falling to record lows, the yen has gained over 200 pips to the U.S. dollar.
The USD/JPY daily chart shows that last quarter’s failure to break above the 124.00 level despite a strong U.S. economy has seen many investors abandoning strong dollar bets against the yen.
Since forming a bullish butterfly pattern with the August 24th low of 116.13 price climbed towards the 124.00 resistance level, but reversed after forming a bearish ABCD pattern in mid-November. If we continue to see selling pressure, major support may come from the 117.00 handle. Deeper support may come from the 115.50 region.
If bullish momentum returns and breaks above the 118.50 zone, key resistance will come from the 100-day SMA, which currently trades at the 120.93 level.
The trade: Sell USD/JPY 118.50, with a stop loss at 119.50 and take profit at 116.50. The risk/reward ratio is 1:2