USD/JPY: Possible beginning of a bullish head and shoulders from 106.60
Last Thursday’s Signals produced a profitable short trade from the bearish reversal at the resistance level identified at 107.34. It would be wise to take at least partial profit if the price does not get established below 106.40 soon.
Today’s USD/JPY Signals
Risk 0.75%.
Trades may only be taken between 8am New York time Monday and 5pm Tokyo time Tuesday.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 time frame immediately upon the next touch of 107.02 or 107.34.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the trade is 20 pips in profit and leave the remainder of the position to ride.
Long Trade Idea
Long entry following a bullish price action reversal on the H1 time frame immediately upon the next touch of 105.21.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the trade is 20 pips in profit and leave the remainder of the position to ride.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
USD/JPY Analysis
I wrote last Thursday we could expect another test of the lows made recently as long as the price remained below 107.34 and that resistance level held. The price has plenty of room to fall so I was very happy to look for a short trade.
This was a good call as the level at 107.34 held and gave an opportunity to enter a short trade which produced a maximum potential profit so far of about 50 pips.
The picture is still mostly bearish, with resistance levels continuing to hold and the Japanese Yen as the strongest major currency again as risk-off sentiment grips markets. However, it is worth noting in the chart below that there may be the beginning of a bullish head and shoulders pattern from the lows we have seen hold at 106.60 and 106.40.
Overall, I think this means that this pair is very evenly balanced between bulls and bears, which is backed by risk-off sentiment making both currencies relatively strong today, but the best potential over the near term might be a surprise upwards movement if the resistance at 107.02 is broken, which could then produce a test of 107.34 very quickly. However, if the price gets established below the recent swing low at 106.40 later, we could also see a sharp fall from there as there are no key support levels below until 105.21.
There is nothing of high importance due today concerning either the JPY or the USD. It is a public holiday in Japan today.