ICmarkets

Our take on the USD/JPY pair, anyone see different??

FX:USDJPY   U.S. Dollar/Japanese Yen
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Weekly Timeframe: Last week saw very little action on the USD/JPY             pair, which as a result formed a weekly inside bar. Should traders take this as a valid bullish signal considering that price is currently hovering above a major swap level seen at 115.50?

Daily Timeframe: Little price movement on the daily timeframe has a resulted in the market remaining capped between a small daily supply area coming in at 119.95-119.14, and a daily demand area seen at 115.55-116.38. It will be interesting to see what the 4hr timeframe has to say about this…

4hr Timeframe: The 4hr timeframe shows that the buyers and sellers continue to battle for position between a 4hr supply area seen at 118.84-118.52, and a 4hr demand area at 116.91-117.22.

With all of the above taken into consideration, we can see that the weekly timeframe is trading just above a weekly swap level, and has printed a potential bullish signal (inside-bar candle pattern). The daily timeframe on the other hand shows that in order for this bullish signal to ‘work’, price would have to take out a near-term daily supply area (see above for levels). With this in mind, we believe there to be two options for any bulls out there:

1. Trade within the current 4hr range from the aforementioned 4hr demand area (tentative buy orders are seen just above at 117.25). This is clearly a respected zone, and will likely react again. However, we personally would only take a trade here with lower-timeframe confirmation since fakeouts are so very common within consolidative areas such as here.

2. The second option is a more conservative one, and requires patience. One would have to wait for price to close above the small 4hr supply area coming in at 119.31-119.12 (located just within the daily supply area mentioned above at 119.95-119.14). This will be the cue to begin looking for fresh longs as the path would then likely be clear up to a nice-looking 4hr supply area sitting at 120.73-120.39.

The approach to selling this market is a little different as we mustn't forget that price is currently trading above a major weekly swap level (see above). Does this mean that selling is out of the question? Absolutely not. Areas to watch for selling action are as follows:

1. The 4hr supply area at 118.84-118.52, which forms the upper limit of the current 4hr range. Entering short at around 118.47 is a valid sell. But one that (in our opinion) requires confirmation.

2. The 4hr supply area that was just mentioned at 119.31-119.12 (tentative sell orders are seen just below at 119.08). This area is effectively the last line of defense for the aforementioned daily supply area. Again, we would only consider shorts here with corresponding lower-timeframe confirmation.

Current buy/sell levels:

• Buy orders: 117.25 (Predicative stop-loss orders seen at: 116.85).

• Sell orders: 118.47 (Predicative stop-loss orders seen at: 118.88) 119.08 (Predicative stop-loss orders seen at: 119.38).
Tell me how the FOMC will sound, and I'll tell you what to do. :) Seriously though, the range is probably still wide enough to accommodate both over 120 and under 117. Typically in these consolidations there are head fakes that look like the range is going to be broken, but it ends up falling back into the range. (See the first 7 months of 2014, and a lot of late 2013) Buyers who can only remember the strong trend phase tend to get wrong-footed at the top of these ranges, and often end up wrong again by giving up at the bottom. It takes poise and discipline to trade these ranges correctly. Have a look at ADX daily, though. There is no trend right now, and that is unlikely to change simply because px might print a number like 120.25 again, or 116.50 again. Play the edges.
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