USDJPY: a Bullish Crab in a Bearish Channel

FX:USDJPY   U.S. Dollar / Japanese Yen
This pair has been ranging in a 230 pip wide bearish channel on the 30M for the last 18 days. It sharply dropped 100 pips last Friday, on the back of US hourly earnings data being reported at -0.2%, raising warning flags regarding the economy. On top of that, FED members expressed there will be no hurry to do a rate hike this year. Despite all this, on the daily this pair is still printing higher lows, so I am not ready to call the overall trend bearish yet. The divergent policies between the BoJ and the FED are the main driver of the overall trend, although more factors come into play like low oil             prices and volatility in the equity markets, both of which favour the Yen. And off course the FED needs to follow through with an actual rate hike, or the trend may shift.

On the technical side, we can now see the contour of a 5-point extension structure: a Crab pattern taking shape on the 30M chart. The price comfortably passed the B point on its way towards the potential reversal zone (PRZ). When defining the PRZ for a Crab pattern , we look at the projection of three harmonic levels. I: the 1618 expansion of XA, II: an extended AB = CD pattern (in this case 1618 AB = CD) and III: an extreme BC             expansion (in this case 3142 BC             ). For Crab patterns, the XA and BC             expansions are the most critical levels of the PRZ and are closest together, so in this scenario I assume the reversal of price might happen near these levels (as represented by the two lowest orange lines in the chart).

Reversals for Crab patterns can be dramatic after briefly testing the PRZ and extreme price action as it approaches the completion point is not uncommon. However, this should not make us trigger-happy. Control your risk. Those who know me, know I enter trades conservatively so I will at least wait for the XA expansion to be tested and for subsequent signs of decisive reversal of price action before entering this trade. SL goes 10 pips behind the next support level . TP1 = 382 retracement of AD and TP2 = 618 retracement of AD. There are 130 pips on the line and the trade has an excellent reward – risk ratio of 7.0!

UPDATE 1: Reversal got triggered smack in the middle of the PRZ this morning. PA went up dramatically by 100 pips, passed TP1 and is now on its way to TP2.

UPDATE 2: Price just touched and passed TP2.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
Trade what you see at work ;)

Well done Mate
JasperForex Fib.The.Gentleman
Yo Fibs! Thanks man, cheers!
Thanks for the comments guys!
Hey JasperForex, you explained this trade setup really well. Thanks for sharing.

Good luck trading!!
Agreed on all points, except my conclusion is more bullish for this pair. I am short the Euro and Pound against the Yen, however.
good .idea...
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