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3 Reasons to Sell USD/JPY for a Quick Run to 79.00

Last updated 5/9/2012 1:48 PM EST (GMT -5) 2 Comments

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Matthew Weller

Technical Analyst, GFT

Follow @MWellerFX

After 7 days of anemic trading, the USD/JPY finally broke out of a near-term range earlier today. At this point, three technical developments on three different charts all suggest a potential sell trade on the pair.

1)       Daily Chart – Bearish Channel

As the daily chart below shows, the USD/JPY has been trapped in a bearish channel since peaking near 84.00 in mid-March. The pair has already dropped over 400 pips over this time period, and as of writing, has room to drop another 70+ pips before reaching the lower end of this range once again.

2)       4hr Chart – Break Below Descending Triangle

Meanwhile, the pair recently confirmed the breakout of a classic price action pattern on the 4hr chart. Over the past two weeks, the pair has carved out a descending triangle with support at 79.65 and consecutively lower highs; descending triangles show growing selling pressure (with each high coming in successively lower) and are confirmed by a break below the horizontal level of support. Now that the 79.65 floor has been broken, this level will be anticipated to provide a ceiling on any subsequent bounces. Based on this pattern, it’s likely that bears will try to push the unit down to the round 79.00 handle over the next couple days.

3)       1hr Chart – Weekly Pivot Support at 79.44

Finally, the 1hr chart may present a specific entry into a sell trade. After breaking below the 79.65 level earlier this morning, rates dropped quickly to the Weekly S1 pivot at 79.44, a leading level of support. At this point the pair bounced, confirming that buyers were willing to defend this level on the first drop, though if bears are able to push the pair down through this floor, there are no levels of support until the Weekly S2 pivot at 79.05.

Based on the bearish technical developments highlighted above, traders could look to set a stop sell order at 79.41 (under Weekly S1 Pivot support) with a stop loss at 79.80 (above previous-support-turned-resistance at 79.65) and a target at 79.05 (the monthly S2 pivot). This trade would be invalidated by rally above 79.80 prior to entry, or if not triggered in the next 24 hours.

Potential Strategy: Sell if USD/JPY drops below 79.41, stop at 79.80, target at 79.05.

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Comments (2)

Darkdoji

May 09, 2012 at 05:41 PM ET

Why does it trade like that much of the time? Moves powerfully and decisively when it does (mainly in reaction to key US data) but will hold still even in the midst of turmoil and then suddenly begin to move - wrong footing the uninitiated. Entered North last week along with the 10 other pairs I am demo trading simultaneously to test a nearly finished version of my bounded model and it would not move. That gave me the chance to kill that trade and enter south on second thoughts after a relook at parameters. And now it moves. Is it the fear of BOJ intervention? Also when does one begin to anticipate BOJ reaction? some say 76 others <75.

MWeller

May 10, 2012 at 03:18 PM ET

Hi DarkDoji - Assuming it follows the previous pattern the BOJ will substantially increase its rhetoric about "closely watching foreign exchange markets" before intervening again. The fear of potential intervention may be affecting the market and leading to the small ranges in USD/JPY of late.

-Matt

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About The Author

Matthew Weller has been actively trading the various financial instruments including stocks, options, and forex since 2005. From his first exposure to forex, Matt was fascinated by the vast liquidity and volatility offered 24 hours a day in the forex market. He has specialised in currency trading ever since.

Matthew focuses on candlestick patterns and pivot points to identify logical trade entries and exits. In addition, he has discovered a passion for teaching others about trading and has conducted over 400 educational webinars on different aspects of trading the forex market. His analysis has been quoted in Reuters, MarketWatch, and on the NASDAQ newswires.