USDJPY: the Ninja Gathering Steam

FX:USDJPY   U.S. Dollar / Japanese Yen
Last week this major went up a total of 160 pips, gaining ground for a third week in a row and reaching highs not seen since 2002. On Monday three US data points came out better than expected (including the high impact ism manufacturing pmi) resulting in a 100-pip rally. Tuesday we saw overall dollar weakness while commodities like gold and oil rallied. But the main event impacting the Ninja last week was the non-farm payroll on Friday. When this tier one data came out, it rallied 115 pips as the dollar soared. The data showed the US economy is doing fine, leaving the FED on course to hike the rates in September. Average hourly earnings also came out better than expected and the Greenback ended the week in a bullish sentiment. As the BoJ sticks to its QQE program and changes to the monetary policy are unlikely for the coming months, there is a strong divergence between these central banks and I remain fundamentally bullish on this pair. On the technical side, the price momentum also seems to point to more upside.

The Ninja has been trading inside a bullish parallel channel for 12 days on the hourly timeframe and formed a bullish pennant after the Fridays NFP-rally. In doing so, it broke above and closed above the psychologically significant 125-handle. Pennants are a common and reliable continuation pattern and as such this one could serve as a conservative entry for the continuation of the established bullish trend. The period of consolidation inside the pennant gave the oversold RSI some relief after the rally, though it remains oversold on the daily. Its possible the pair has gathered enough steam to continue in the established trend direction and may eventually break out of the channel. It’s in bullish territory both fundamentally and technically. As is usually the case, the pennant was preceded by a sharp rally that is almost straight-line-like, called the pennant pole. Measuring this pole and expanding it upwards from the potential breakout point is a way to estimate the projected price movement in case of a break to the upside.

This upside potential coincides with a daily structure S / R level from 2002. If the pair would break to the upside of the pennant , I would go long. The stop goes below the apex of the pennant . TP1 = 126.27 and TP2 = 126.78, which are both daily levels. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2.

There are 120 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 5.0!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
Well, obviously I was wrong about this one, the Dollar Index fully retraced all the NFP gains from Friday. There is no fundamental news that I am aware of behind this. On to the next trade!
Another master piece! I wonder when it crashes how fast will it.
+1 Reply
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