USDJPY Setup Happening Now

The USD/JPY seems to have found a bottom. At least for now.

With new goverement talking heads in office in Japan, most (including me) expect the Japanese government to come out beating up the Yen and trying to push it down. That means a likelihood that USDJPY has a lot of upside potential.

In his recent talks with former US Fed Governor Ben Bernanke, Abe pointed that he wants to end deflation quickly. “We are only halfway to the exit from deflation,” Abe said at the start of the meeting at his residence Tuesday. “We want to be steadfast in accelerating our breakaway from deflation,” reports Bloomberg.

 

Having these fundamentals supporting a Long opportunity is a great place to be.

Weekly Charts

7 14 - 1

The last time the USD/JPY pair had touched 100 levels in 2014, it provided a strong support. I expect the level to hold this time as well. Though the knee-jerk reaction on the Brexit results day pushed the pair down below the level of 100, it quickly reclaimed the level confirming demand at lower levels.

The pair should first reach the downtrend line; above which it should reach 112 levels. The RSI is also close to the oversold levels, warranting a pullback. Let’s look at the shorter time frame charts to find a suitable entry point.

 

Daily Charts

7 14 -2

The pair has broken out of the steep downtrend line as shown in the chart above. It is likely to head toward our next trend-line around 107. From there, we have continued upside potential as shown on the chart.

The RSI is also supportive of the move. It has entered into positive territory, rising from oversold levels.

However, after a sharp two-day rise, we will see the pair retrace a bit which is exactly what gives us an opportunity to buy at a good price.

Let’s zoom into the 4hr chart to highlight an entry point.

Entry after a retracement

7 14 - 3

Ideally, I wait for a retracement after a sharp rise. The pair should retrace to anywhere between 38.2% to 61.8% of the recent rise, as shown above.

The corresponding levels are 103.774 to 101.859.

If the pair drops below the 101.859 levels, all long bets are off.

If the pair comes into one of our support zones and begins showing strength (4 Hr Bullish pin bar for example) we have a buying opportunity.

If it shoots right through the level, we know to keep our finger off the trigger and wait for the next support zone.

Based on where we get our entry signal, the stop loss should be placed below the next support zone to give us a bit of room and safety on the trade.

From there, I look to target the areas mentioned previously but with a close eye on 60 Minute and 4 hour charts in case of a reversal. This is one that can shake us out easily so I will be OK with bailing on the trade for a small profit and looking to get back in if necessary.

What if it doesn’t correct

7 14 - 4

Sometimes the moves are so strong that they don’t retrace to our levels. If we keep waiting for the retracement, we end up losing an opportunity.

This is one of the most important parts of developing as a trader…

Missing a great opportunity is OK. And if you keep trading, you will miss many, many more. It’s not about catching every opportunity, it is about NOT chasing opportunities with bad entries that hurt your account.

If it soars without coming into our levels, kiss it goodbye 😉

Hope this helps and let me know if you get into this trade.

-J

 

 

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