Trading Opportunities with USD/JPY in the Coming Days

September 23, 2014 in Forex Analysis

As we had mentioned during the first week of this month in an USD/JPY update titled “USD/JPY – Is 110 still a dream or becoming a reality?“, repeating the same thoughts which were voiced almost 9 months back in another post titled “USD/JPY 2014 Outlook – Is 110 a question of “when” not “whether”?“, the currency pair made a move to test the key psychological level of 110.00 on September 18th. The price touched a high of 109.46 on that day.

USD/JPY losing the momentum ahead of 110.00.

The resistance faced 54 pips ahead of 110.00 is quite natural. After many year’s movement above 100.00, the break below this key psychological level had come during 2008. However the break was brief and USD/JPY had jumped up very strongly to test 110.00 level after that. The failure had taken place at 110.68 and since then the great downfall had started which saw the pair to touch 75.36 during October 2011. The price-action had continued to be below 100.00 till the end of April 2013 i.e. the price action practically had stayed below 100.00 since October 2008 or four and a half years. Once exception during this time was during April 2009 when a slight break over 100.00 took place with a failure at 101.45.

Let’s see the following chart to check the price movement of USD/JPY over the past decade:

USDJPY historical chart from 2001to September 2014.

What happened after the break over 105.00?

After such a long bearish trend, when the pair had, at last broke over 100.00 and then touched 105.44 during the end of December 2013, it remained range bound since then, for seven and half months. The range was between the two critical psychological levels of 100.00 and 105.00.

The range bound movement of USDJPY between 100.00 and 105.00.

Trading Strategies

As mentioned above, 110.00 should now act as a major psychological resistance, especially after years of strong bearish trend. The price action of past 4 trading days, after hitting the high of 109.46, clearly indicates the loss of momentum and the fear of 110.00. Considering this we would expect an extended range bound movement between 105.00 and 110.00. On the upside, even if 110.00 resistance fails, we would expect the gains to be limited below 110.50. This represents a good trading opportunity if the risk appetite allows a stop-loss in the range of 110.00 to 110.50.

The possible profit-taking targets could be as follows:

1) 107.40: This level was a resistance for a short range bound movement during the middle of this month. This resistance is expected to turn into the first level of support now.

2) 106.80/106.85: This range represents the support level of the above mentioned range-bound moves and also coincides with the support of the Kijun line of daily Ichimoku cloud. The psychological support of approaching 105.00 ranges should also start coming into the picture from here.

3) 105.30 to 105.80: The support range represents the support range of Kijun line and Tenkan line of the weekly Ichimoku cloud. Here the strong psychological support of 105.00 will be full in force. However, the possibilities of a dip into 104.00 range can also not be ignored

Overall, till any sustained break over 110.50 does not take place, USD/JPY presents a good opportunity of repetitive short-selling in a price band near 110.00 i.e. 108.60 to 110.00 and then buying in a price band near 105.00. If the history of what happened for over 7 months between 100.00 and 105.00 repeats itself then the levels of 105.00 and 110.00 can bring some handsome gains by this range trading.

Let us have a look at the daily and weekly Ichimoku cloud charts of USD/JPY:

Daily Ichimoku cloud of USD/JPY

USDJPY with daily Ichimoku cloud.

The above chart also shows how the previous support level is coinciding with the mentioned support of Tenkan line.

Weekly Ichimoku cloud of USD/JPY

weekly Ichimoku cloud.

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