Today for our DecaPip Daily feature, I would like to look at the USD/JPY and how we could potentially look to trade this pair as it increasingly searches for meaningful direction and a range break from the 124.20 to 125.55 level it currently finds itself boxed in.
The best way for me to show you my thoughts is to present the following charts, which best articulate exactly what is currently happening with USD/JPY and a clear mapped out pathway we can observe.
Here we have a 4 hour chart and a 30 minute chart, which are effectively telling us the same story if we look close enough.
A break above 124.55 exposes the way to 125 handle, and if a break below 124.20, we should expect to see a sell off to 123.80-1233.20, at least where the currency will be on slippery ground if it breaks further below further support.
As traders, what is the best way for us to trade the USD/JPY based upon this analysis from our 2 charts above?
The first way to trade USD/JPY would be to look at 124.55 as key to holding the upside for this pair. If that can hold, we could take a sell position if we feel the upside is exhausted and sell into weakness. Alternatively, if it breaks this resistance easily and buyers step in, we can then look to buy into the move with relatively small stop loss, as we have 125-125.08 as a near term target for the breakout with even 126 flagging up.
Another safer way we can look to trade this is to wait for the 125 to 125.08 level and take a sell position if there is no meaningful follow through here past our 125 resistance level.
With this particular trade, there is tremendous risk reward potential to the downside, so we should place our stops slightly larger in order to give it breathing room, with mind to capture the full downside move below should the move occur.