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FX Analysis

Dollar Yen in the crosshairs

Dollar Yen in the crosshairs

By Chloe Edwards, Trade With Precision

The Japanese Yen is often thought of as a safe haven currency, so in uncertain times such as these, we can sometimes see an increase in the value of this currency versus several others. That means I have a fundamental, as well as a technical reason to be looking now for short opportunities on USDJPY, as well as some other JPY cross-pairs.

As the coronavirus crisis intensified in late February/early March, we saw greatly increased volatility in the markets, and a whipsaw in price on USDJPY – first to the downside, then to the upside.

This preceded the subsequent month-long indecision and consolidation in this market, which appears to now be coming to an end, yielding potential trend trading opportunities. As always, I am keeping risk management at the forefront of my mind in these unprecedented times, while continuing to look for opportunities to take advantage of the bear trend.

On the daily chart, I can see a downtrend now in place, since price broke down through the support level shown around 107.00 on 28 April. I can now see lower highs and lower lows in price action, and the 10, 20, 50 and 200 moving averages (MAs) lining up and pointing downwards, showing bearish geometry.

Both the MACD and the RSI indicators are trending lower in a bearish fashion, showing convergence with price, which could confirm the trend momentum to the downside. The combination of this price action and the indicators suggests to me the potential for possible short swing trading opportunities.

So I am currently looking for a pullback into the area around the 10 and 20 MAs on this timeframe, ideally coinciding also with the broken level of support at 107.00, which could now form resistance. I will then look for a small bearish bar to form around this area. If this happens I will use it as the basis for a short entry. If I await this pullback, it looks likely there could be a decent reward-to-risk potential for the trade, as the next obvious level of support sits around 105.30.

In order to gain a potentially even better reward to risk trade, I am also looking down to the four hourly timeframe. I notice the same bearish geometry of the MAs, along with lower highs and lower lows in price action, and overall bearish convergence of the momentum indicators. I notice that price has pulled back into the MA sell zone on this timeframe and has formed a number of small bearish candles. A break below the low of these bearish candlesticks will trigger my trade with a sop loss above the highs at 106.80 aiming down towards the 106.00 level as a potential target.

Stay safe and healthy, and happy trading.

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