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I’m going to get started today on the US Dollar versus the Japanese Yen [USDJPY]. I’m starting all the way out here on the Weekly Chart. Get a long-term perspective for this currency pair before we go down to some of the smaller timeframes.
First off, going all the way back down to the bottom left-hand side of the chart, into 2012, we began what has been a very long-term uptrend here for this currency pair. We see it starting all the way down here into the mid-77s, 77.50 or so, at the bottom of the trend. It started a pretty aggressive uptrend that pushed all the way up here into the 102s, 102.50, 102.60, 102.70, towards the 103.00-level. Then we went into a period of contraction, where went into this yellow triangle pattern here, broke out in the direction of the previous trend of that triangle and continued and made a new high here into the 105s.
In the most recent months and basically since the beginning of this year, we saw a little bit of pullback from the uptrend and went into a period of ranging inside this red box. And we studied that red box for several months, buying at the bottom of the red box, in the direction of the longer-term trend. In most recent weeks, we’ve seen a breakout of that red box, a breakout of the range there that developed over a several-month period of time, and now we could see that the market is now challenging and testing the same historical resistance.
And again, this goes back multi-year. And the last time we were actually into this level, into the 105s here, was back in 2008. So, if I scroll back just a little bit or I could go out here to the monthly chart, we can go back here and see that back in 2008 was the last time we saw the market into this zone. One thing that I want to do while I’m out here on the monthly chart is show you the Fibonacci that’s drawn here on the chart. Fibonacci from the highest high at the top of the chart, into the 124s, all the way down to the lowest low on the chart, into the 75s. We could see Fibonacci of that last downtrend puts the .618 Fibonacci retracement level at 105.60.
So, I really want you to see where that .618 is, the dashed line that represents that Fibonacci at 105.60. So, now let’s take all of that information from the Weekly and now the Monthly back down to the Daily Chart. Now we could see where 105.60 is. It’s just above the blue-shaded area, so that dashed line that comes in from the left-hand side of the chart. Take a look at where the market found resistance. The last spike high of the highest candle that we see here on the chart. 105.60s and 105.70s was our last spike high.
So, it went right up into that monthly Fibonacci level, the .618 into the 105.60-level, and then recoiled a bit back down under our historical resistance. Now let’s go back. Zoom it out here on the Daily Chart a little bit. You could see that historical resistance. 105s. The mid to low-105s back here on the left-hand side of the chart, back in November, December, and January earlier this year and late last year. Right there into that blue-shaded area. So, critical resistance there.
This is a major resistance level. As long as it stays underneath it, we saw what happened last time. Went all the way back down into the 101-level. Does that mean that’s what’s going to happen this time? Not necessarily, but we know that this is a critical decision point. It’s a hinge point here for this currency pair. If it stays underneath it, we could see some recoil or bounce back down. If it breaks above it, we look for a continuation of the trend and new highs that we haven’t seen since, again, going back to 2008 here for the USDJPY.
So, lots of really critical historical information. Currently the pair is in an uptrend. Long-term trend we just looked at from 2012, and even the shorter-term trend that we have highlighted here with the blue trend line. The currency pair is in an uptrend. If you’re going to trade in the direction of an uptrend, you really don’t want to buy it at the very top of the trend. You want to see some recoil. You want to see some retracement back down to a support that gives you a lower risk, higher reward opportunity to buy it.
Right now, if you were to buy it and it continues to hold the resistance into the 105.25, 105.30-level, then you’re running the risk of losing a trade. That’s your risk. If you buy it at the resistance, you’re running the risk of losing, but if you wait for it to go down into support before you buy it, at least there’s some breathing room before it reaches back into that resistance and you have an appropriate target. Right now your appropriate target has been met because we’re at the very highest high and your risk is higher because your stop losses are further away.
So, again, if we’re going to buy this in the direction of the trend, I think we need it to go down. Bottom of the blue zone, maybe. Down into the purple-shaded area, into the mid to low-104s. That would be even more ideal. If it doesn’t do that and just simply breaks out above 105.25, 105.30, then we look for clues to that breakout. Not simply a price push like I just pointed out a few moments ago. If I zoom it in here again, we could see that it has already pushed all the way up into the 105.60-level, and then recoiled real fast, leaving what you might even interpret as a spinning top candle or previous daily candle with that red body and the long shadow on either side of it.
So, either way you look at it, I don’t think this is your ideal opportunity to buy this currency pair. It has to go back down into support before I would buy it, or simply a breakout, which it hasn’t done. A clear, singular candle open and close above 105.20, 105.30, the top of that blue-shaded area. That gives me the sense of a breakout. Right now we’re just seeing that congestion, that hesitation underneath 105.25, 105.30. So, inside the blue zone we look for dips into support. 104.80, the bottom of the blue zone or even down into 104.50, which is the purple-shaded area.
Let’s go ahead and put a couple arrows there. This is our buying opportunities. Down here at the bottom of the blue zone, or down here into the purple zone. Those are your buying opportunities. The other opportunity to buy it of course is the breakout, singular candle. Daily or higher above that blue zone will give us the sense it’s going to continue to pressure higher. So, no buys at the current moment, as we’re sitting down here underneath 105.25.
What about selling this? Well, that’s a possibility. We could be looking for some intraday reversal here today, back down to the bottom of the blue zone or the purple-shaded area. Your risk of course, your stop loss is that it goes above the blue zone, above that spike high there into the 105.70-level, and then it continues to pressure higher. So, if you’re looking for a sell, 105.25 may be your very best opportunity for the day today that you’re going to see, looking for that reversal. You could even take this, again, down to smaller compressions. Let’s go down to the 4-Hour Chart. Clearly this pair is sitting into resistance, into the 105.25-level. We see the high on the left. The high in the middle. Now we’re looking for a high on the right-hand side.
This may end up being a small head and shoulders pattern. It hasn’t been confirmed yet, but definitely something to take into consideration if it does continue to hold here under these highs. Let’s take a look at this. Let’s put this trend line here. I’m just going to draw it out, and let’s make it red so it’s a different color here on the chart. That red trend line. A little bit of a shorter trend line than the longer blue one that you see there. That of course would imply that if it breaks down underneath that blue-shaded area, underneath the current support and that red trend line, we look for a little bit of short-term reversal, which could be, again, back down to the purple-shaded area.
So, a few things looking for over the next coming days. Of course buys on dips into support in the direction of the trend are still possible. We’re looking for sells on rallies into resistance, which we’re there right now. It could provide a low-risk intraday opportunity. Could be watching for a small head and shoulders pattern to develop, but of course I would like to see a new lower low develop to confirm that head and shoulders pattern. So, definitely some opportunities today to watch for. Forex Black Book is still green. That has not changed for the past couple of weeks, so that gives you a little bit of a bullish bias to the USDJPY this week.
