USD/JPY Forex Signal: Bulls and Bears Evenly Balanced

Long-term bearish trend in this currency pair is still valid.

Today’s USD/JPY Signals

Risk 0.75%.

Trades must be entered prior to 5pm Tokyo time Wednesday. 

Short Trade Idea

  • Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of ¥132.88, ¥133.28, or ¥134.00.
  • Place the stop loss 1 pip above the local swing high.
  • Move the stop loss to break even once the trade is 20 pips in profit.
  • Remove 50% of the position as profit when the price reaches 50 pips in profit and leave the remainder of the position to ride.

Long Trade Ideas

  • Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of ¥131.32, ¥131.61, or ¥130.00.
  • Place the stop loss 1 pip below the local swing low.
  • Move the stop loss to break even once the trade is 20 pips in profit.
  • Remove 50% of the position as profit when the price reaches 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

This currency pair has been the subject of some market focus lately, as the Bank of Japan, after standing out amongst major developed nations with its unusually dovish monetary policy which included a negative interest rate, has made a hawkish tilt as the first signs emerge the inflation is finally starting to emerge in Japan. Unlike the rest of the world which is mostly trying to bring inflation down to a 2% target, Japan has been suffering from deflation and has been trying to get inflation up to 2%. Data yesterday showed inflation in the Tokyo area has reached 4%.

The Bank’s ultra-loose monetary policy produced a sharp devaluation in the Yen over the past year or so, but that reversed very quickly just a few weeks ago, to the point where this currency pair reached a multi-month low which qualified it as a valid long-term bearish trend.

This was the result of a perfect storm where the bullish US Dollar trend finally began to unravel just at the same time as the Yen finally began to start gaining strength.

So, the long-term background suggests a bearish picture in the USD/JPY currency pair – what about the shorter-term, which is more relevant for Forex traders?

The technical picture shown in the price chart below shows a very even, consolidative balance between bulls and bears following the big swings we have seen some days ago. The support and resistance levels either side of the current price looks quite evenly spaced and balanced, and the price action is consolidative.

This suggests that we have no real clues as to direction over the short-term, which makes sense as the market is awaiting the release of US CPI (inflation) data on Thursday which will be very important and will likely determine the course of the Dollar’s price movements over the following days.

As the market is in waiting mode, the price is likely to continue to consolidate as we have such heavy consolidation factors in play technically. This means that the best strategy for trading this currency pair today will likely be to scalp reversals from any key support or resistance levels. Both of the nearest levels at ¥132.88 and ¥131.32 look likely to hold at first touches.

USD/JPY

There is nothing of high importance due today concerning either the USD or the JPY.

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Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.