FX Analysis

Targeting an AUD/JPY reversal

CMC Markets

By John Sheridan, Trade With Precision

Some of the better trading opportunities occur when an instrument is getting ready for a move on a higher timeframe - ideally the monthly chart - and presenting a potential entry on a lower timeframe. This strategy can offer the opportunity for a lower-risk entry on the lower timeframe, with the potential to stay in the move for the longer term. Right now, AUDJPY is showing the potential for this scenario.

Analysing the monthly chart below, the long-term down trend that has been in play since 2017 seems to be in the process of reversing. Since putting in a low in March, price has rejected that move lower and gone on to make a higher high and now looks to be making a higher low. The MACD and RSI have both turned up and indicate bullish momentum.

On the weekly chart, price also looks to be going through the process of trend reversal, with the shorter-term down trend breaking down as price makes a higher high. The momentum looks to be to the upside on this timeframe as well, with the indicators supporting this narrative.

Looking at the daily chart, the price action also looks bullish. Since putting in a low at the start of November, price has surged upwards with the move being confirmed by both the MACD and the RSI. 

Whilst the indicators suggest there is still momentum left in this move, the two most recent candles are dojis. These candles imply that price may be about to pull back.  A pullback on the daily chart could provide a lower-risk entry point with the potential to stay in position for a longer-term trade.

My approach to this opportunity will be to look for price to retrace to the 61.8 percent Fibonacci level that is clustering with a prior support and resistance level and look for an entry there. A logical place for a stop loss would be below a lower Fibonacci level, with the 100 percent level being a possible option. 

The plan for this trade would be to participate in the potential longer-term move suggested by the monthly chart. Closing out half of the trade once a one-to-one risk-to-reward has been reached would lower the position risk, making it more comfortable to stay in for the longer term.

Happy trading.

 


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