A Diagnosis of the Yen Currency Pairs: the Value of Fibonacci Targets

The USDJPY is heavily struggling with its uptrend and has been dragged into a nasty consolidation.

Other Yen pairs such as the EURJPY and GBBJPY have retraced ever steeper and deeper than the USDJPY–primarily due to the relative strength of the US Dollar against the Euro and Pound currencies.

This article will review all 3 pairs and share vital information about the usefulness of the Fibonacci targets (comments on this are highly welcomed).

USDJPY TRIANGLE ON THE WAY?

The USDJPY has reverted at both the bullish and bearish deeper (78.6/88.6) Fibonacci retracement levels, which is a signal that a wedge could be in the making. The screenshot here below shows the future wedge on the USDJPY (orange lines).

15- 1- 2015 uj d

The best trade setup is a long after the wedge is completed (purple circle indicates that spot). The main reasons are:

  • The daily and weekly chart has a strong uptrend;
  • Buying at the wedge completion offers a setup with the best reward and smallest risk. A wedge will have 5 swing high and swing lows before it’s completed.

Another good setup is trading the Fibonacci targets such as the -27.2 and the -61.8 (green circles).

  • There is no guarantee that price will reach these lower points (due to the potential of a wedge as mentioned above).
  • But IF price reaches the targets, then these levels are high probability bounce zones.

GBPJPY AT THE -61.8

The GBPJPY too has been in a strong uptrend, although recently price has retraced quickly to the downside. In such situations where a trend is present but the market is correcting quickly, it is always very lucrative to:

  • Place a Fibonacci retracement tool on the first correction;
  • Locate where the -27.2 and -61.8 Fibonacci targets are;
  • Wait for candle stick patterns at one or both of the targets to occur;
  • Monitor whether the bounce is impulsive or corrective. If corrective, it could be wise to exit the setup and try to reenter again later on.

The above pattern is visible on the GBPJPY. The currency pair fell quickly and if a trader puts a Fibonacci tool on that first swing, then you can see that the pair stopped at the 78.6 Fib level. Price then fell towards the -27.2, bounced at that level, then made a correction, and in fact continued with one more leg lower. The price reaction to the -61.8 has been more impulsive than the -27.2.

This pattern is reoccurring on all time frames and currency pairs and is a very useful and powerful tactic in catching bounce spots in a trend.

15- 1- 2015 gj d

EURJPY AT THE -161.8

Although Fibonacci targets in trends are high probability trade zones, there is never a 100% guarantee. That is why waiting for price action confirmation via candle stick patterns is so important.

The candle patterns provide the confirmation that price IS indeed stopping at the pre-designed levels. The EURJPY is an example of how price just whizzed by the -27.2 and -61.8 targets and ultimately only paused at the -161.8 target (although most often price does at least stop at the targets).

These targets are ideal bouncing spots and offer great trade setups.

Let us know if you use Fibonacci targets or if you are interested in using them!

Happy Hunting

15- 1- 2015 ej d

The following two tabs change content below.
Winners Edge Trading was founded in 2009 and is working to create the most current and useful Forex information and training available on the internet.

Winner’s Edge Trading, as seen on:

Winner's Edge Trading in the news