Our previous short position in USD/JPY went as expected and we were able to book more than 200 pips profit in an overnight trade. However, the decline in USD/JPY is only a corrective move, and we expect the pair to continue the trend starting in the second week of July.
We were considering this pullback as an opportunity to start accumulating, however the real signal to enter a trade was given today when during the Asian session USD/JPY had recovered most of the downfall in an impulsive manner.
The most appealing signal for the moment is the fact that the pair tested SMA 200 but reversed and closed above it. We will start our long at 105.5 as it is an important level and will add in 105.00 with a stop loss at yesterday's low of 103.96.
USD/JPY 4H Chart - July 27, 2016
With the FOMC rate decision today volatility will spike, thus we are allowing ourselves a higher stop loss in order not to get invalidated at the wrong levels. The target for this position is initially the higher level or 107.5 (previous high), and then considering the fundamental events concerning the JPY, we believe USD/JPY will play in the highlighted box for the weeks to come.
USD/JPY 4H Chart - July 27, 2016