End of The Yen Uptrend?

Hi there Traders,

I hope that you all had a great weekend!

Today’s article will be focused on the USDJPY! For those who might not have noticed, the USDJPY had a significant event last week. Read the rest of the article to find out more about the current status so that you are fully aware and up to date on the USDJPY.

But before I start, I want to ask you a favor. Could you let me know which currencies you actually analyze and on which time frames? I want to get an idea what kind of trading opportunities you want to see in the articles. So it would be really cool if you could let me know, that way I have an idea what type of a trader you are and we can provide the best FX advice ever. Best is to put the  feedback in the comment section down below, thanks!

USDJPY

Alright folks, last week marked a pretty significant event for the USDJPY. Any idea why?

You are allowed 3 guesses! 🙂

3…

2…

Ok, I will give you at tip: it is something which has not happened in the last 4 months.

1….

For the first time since the massive and impulsive up trend of the Yen weakness started, the currency has not broken the high for 2 weeks in a row.

You might wonder: is that really so special?

And my answer is: Yes in my opinion it is a significant event.

Week after week, the USDJPY has managed to put together enough strength to make a new high. It had done so for 4 months straight. Here are some interesting facts:

  • It posted newer weekly highs for 10 weeks in a row;
  • It posted newer weekly highs in 13 of the last 14 weeks;
  • It posted newer weekly highs in 18 of the last 22 weeks;
  • Since mid September only once did the UJ not break a week high for 2 weeks à in other words there was only 1 fractal on the UJ since mid September;
  • Since begin December the UJ had not a single fractal (didn’t have 2 weeks of price moment in a row under any of the candle highs).

These numbers basically confirm what any Forex trader and FX analyst can see on the chart: a massive up trend.

APR 1 2013 USDJPY WEEK

Significance?

With that said, what is the actual significance of that event on the UJ outlook? What kind of movements could be expect from the UJ?

Obviously the USDJPY has bumped into higher level resistance. The uptrend apparently became unsustainable when the UJ was not able to push through these levels and the weekly highs.

This could mean many things but in any case the chance of a break to the upside, without a larger consolidation area and pullback, is becoming very small. There is never ever any guarantee in trading, but the statistical probability of any upside movement breaking the weekly top is now becoming minuscule.

From this we can conclude that the USDJPY will either enter a period of huge consolidation or sideways movement, which is a method of passive correction. Or the USDJPY will make an active correction, which means the currency will correct itself deeper and we would therefore see a deeper retracement.

In scenario number 1 the currency will bounce back up and down in a ranging type of market.

In scenario number 2 the currency will make relatively impulsive price action movements to the downside.

To make a distinction between scenario 1 and 2, it is vital to keep an eye on the bottoms at 92.90 and 90.90. The 92.90 level is the weekly low of 4 weeks ago, which still has not been broken. The 90.90 level is the weekly fractal and bottom of last move up.

Week chart

Other important levels on the week day and day chart are these:

–          The UJ has had 3 bearish week candles in a row à In the entire up move the UJ has not posted 2 bearish candles in a row, now it has 3;

–          Steep up trend line has been broken à 1st indication of the trend ending;

–          The MACD red and blue lines are crossing to downside à this as well could indicate that the uptrend has ended and a period of retracement or consolidation has started.

As you can see, also these 3 items might confirm the end of the bullishness and could even signal further bearishness.

Before we can conclude, we must note that there are some significant support levels in the market. Lets us take a look at the day chart.

APR 1 2013 USDJPY DAY

Day chart

The day chart is showing that the upside support is still active. Here are some of the key observations:

–          Price is right at the shallowest up trend line à will we see a bounce or break?;

–          Price is still at support levels, close to the weekly low of 90.90;

–          Bounce of broken top to upside was weak and could not break top, which shows significant weakness of the UJ for the moment.

Potential Forex setups

As mentioned in the article, I am cautiously bearish on the USDJPY and I am keeping a keen eye on the day uptrend line. If price remains above the trend line I am still neutral. A break of that trend line would make me cautiously bearish. A downward break of the last horizontal support at 90.90 would confirm my bearish stance. Any movement above 90.90 could spell prolonged sideways corrections. A break below 90.90 would most likely translate into larger downwards corrections. I am not shorting the immediate break of the trend line or horizontal support, but will look for hook backs and retraces to Fibonacci levels. In general though, the movements of the UJ might be very similar to the one shown in the picture here below, if the currency displays a scenario 2 type of correction. With a scenario 1 correction, the currency would be range bound and go sideways for a substantial period of time between +/- 91 and 96.

I hope that you enjoyed the Forex trading advice.. If you did like the article, then please retweet it so that your trading friends are aware of this info too. Thanks!

APR 1 2013 USDJPY WEEK 2

Winners of contest

Last week we announced a contest. Whoever posted a chart last week  in response to our articles in the comment section of the website had a chance of winning 1 day access to our live trading room…

So, the winners are……………

–          Geezergar… AND

–          Charles Xaiver Patrick

Congratulations with your prize!!

To collect your prize, please send us an email with your preferred date!

Friday’s article / Tomorrow

In tomorrow’s article I take a good look at the XAGUSD… I promised a reader to run my analysis on this commodity, so I am fulfilling that promise in tomorrow’s article. Don’t forget to let me know if you have a favorite currency you want me to analyze!

I also hope that you managed to get some Forex reading under the belt. I suggested some material in last Friday’s article on stop losses, make sure to take a look! The article was very popular so I will be writing a 2nd part this Friday. Make sure to keep an eye out!

Thank you for reading and Good Trading!

Twitter account is @winnersedgtrad!

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  • Thank you Seth for your feedback. It is really appreciated! I agree with your views and find your insight very interesting. Yes the USDJPY is in a tricky spot. Even from a technical analysis point of view, the currency could be in for some quiet time or bigger corrections. That could be difficult trading. Remember the days when the USDJPY hardly moved 10 pips up and then back in 2011? Hope that we wont get such a slow down, but one never knows. The fundamental side is tricky too. Maybe the BOJ is closing some nice Yen short trades for profit 😉 In any case, there will be a statement and conference later this week.

    It could be better to keep an eye on EURJPY and GBPJPY. These currencies were not able to break the tops either so there could be some good downside potential.

    Regarding the state of the economy: both the EU and the US are in their own kind of messy situation indeed. i agree with you. However both do share 1 common problem: the debt. The West seems to have spent much more than it receives and the solution cannot be more debt forever. Solving this problem will not be an easy process, to say the least. Therefore we could see diversification strategies into other currencies, like the ones you mentioned. Lets see what the future brings us 🙂

    Thank you again for your feedback and Good Trading! Chrsi

  • Seth Blackstone

    For myself I am mostly neutral on all of the yen pairs, while I consider myself more of a technical trader then anything else, I don’t think that it would be wise to ignore the fundamentals of JPY in general, I trade using renko bricks and/or range bars, so the conventional time frames mean nothing to me for the most part. For me, pure price action and the perceived relative strength and weakness of a currency directs my thought processes and analysis. I do still use the conventional time frames from time to time when I am looking for “very” short term scalping opportunities.

    I personally am having difficulty getting a sense of the BOJ’s new administration and their desire to reach their inflation goals and the screaming need of a technical pull back for the UJ. For all of the other jpy pairs that I track, their price action charts look almost like clones of one another with the exception of the UJ, which gives me further pause about getting involved with the UJ. The UJ is just too unpredictable for me at this time, it is too susceptible to event risk and low liquidity conditions for me to give any serious consideration.

    I personally am looking to longer term bullish positions in the commodity and Scandinavian currencies as they relate to the USD and EUR, This USD strength that we are all enjoying at the moment is an illusion, The next key events to watch for in my opinion will be the next credit rating down grade of the USA, double digit inflation and the raising of rates by the fed. When one or more of these event occur the USD is going to begin its decline into the abyss for the foreseeable future.

    It is my opinion that the EUR(O ZONE) is primarily suffering from rampant corruption and falsified public records, it would appear that the governments of the various members are lying to one another and have been for some time. While the surprises of Cyprus and Soldavia(sp??) seem to support my opinion, I fear that the problems and the corruption goes infinitely deeper then any of us out here know. Anyway that is my 2 cents (which I guess is only worth 0.005 cents)