USDJPY - What can't go down, will likely go up (sooner or later)
Just because something is trading below the Kumo, can not necessarely become really bearish and establish a bearish trend. USDJPY has been a great example for this. What we see here is a wide range consolidation with probably a lot of unwinding of previous long term bullish positions. The big story has become boring. But less bullish positionning doesn't mean a bearish trend can develop. When someone is using a cloud breakout strategy, real Ichimoku experts always call the attention for the importance of clearing previous support/resistance! And this is the point here: price has failed to break below the 101,20 support line three times within last four months. (The first ellipse was rather just a Kumo bottom test).
By now the descending triangle started to tighten, while the future Kumo has also become a flat line (this is kind of very rare in USDJPY). This is the field of total undecision. However Slow Stoch and MACD are giving bullish signals. So what can not go down in short term will likely go up. 4 Hrs chart tells us the same, that is rather bullish now.
How high can it go? Until it doesn't break up above the daily Kumo, we shoud assume as high as the down trend line (triangle top) and Kumo top, which is at ard 102,40. Above this a longer term bullish trend would resume.
The downside is obvious: break below 101,20 is needed for the bears. There is the horizontal support and a longer term uptrend line (green one).
So how to trade? What else does come into your mind, when you see a sideaway, range trading market for so long? That is Volatility! If you check 1 or 2 months vol. you will likely be as surprised as I was. Both implied and historical is pretty low. Based on the trend lines the break should happen within 1-2 months. Based on the indicators short term the chances are rather for some more spike. As both Call and Put options are cheap, first buy a 1M or 2M 102,75 Call and when it spiked up, you can buy cheaper a sam maturity 101,20 Put. The result is going to be a cheap straddle. Then just wait for the break.
By now the descending triangle started to tighten, while the future Kumo has also become a flat line (this is kind of very rare in USDJPY). This is the field of total undecision. However Slow Stoch and MACD are giving bullish signals. So what can not go down in short term will likely go up. 4 Hrs chart tells us the same, that is rather bullish now.
How high can it go? Until it doesn't break up above the daily Kumo, we shoud assume as high as the down trend line (triangle top) and Kumo top, which is at ard 102,40. Above this a longer term bullish trend would resume.
The downside is obvious: break below 101,20 is needed for the bears. There is the horizontal support and a longer term uptrend line (green one).
So how to trade? What else does come into your mind, when you see a sideaway, range trading market for so long? That is Volatility! If you check 1 or 2 months vol. you will likely be as surprised as I was. Both implied and historical is pretty low. Based on the trend lines the break should happen within 1-2 months. Based on the indicators short term the chances are rather for some more spike. As both Call and Put options are cheap, first buy a 1M or 2M 102,75 Call and when it spiked up, you can buy cheaper a sam maturity 101,20 Put. The result is going to be a cheap straddle. Then just wait for the break.