After a large consolidation (entire 2014), the USDJPY has posted several daily candles above the monthly top of 105.44. Certainly there were and are no hints of any apparent weakness during the breakout.
From a previous article we already know that the USDJPY could offer a 1500 pip breakout potential. With the current proper breakout in place, how will traders be able to capitalize on massive upside potential?
Option 1: patience. This trait is often a useful and rewarding characteristic for traders. It is appealing to “jump” into a trade and attempt to capitalize on it NOW. But in a decent number of cases, price makes a retracement and offers a discount to traders. Therefore, the alternative is waiting for a retracement back to the breakout level and either taking a long at that level (105.44ish) OR seeking confirmation of a bounce at the broken resistance (now potential support).
Option 2: jumping in the break. Such a breakout could attract a lot of attention and push the USDJPY to an impulsive breakout. In that case a hook back to the broken resistance could not occur. Taking a long here would “guarantee” a piece of the action, but there is a chance that price could retrace and place the trade into negative for a while.
Option 3: implementing a scale-in strategy where a trader implements half of option 1 and half of option 2; maybe combining the strengths of both options.
No matter which option is chosen the stop loss placement is a straight forward process. The stop loss should not be placed above the broken top because price could make a retracement. The best level at the moment is below this week’s initial low (104.99). Although in theory this week’s low could end up at a lower spot, it seems unlikely that this week’s low will be challenged without causing a reversal or retracement.
The main weekly target is at 110.90 which is the -27.2 target of the large bullish swing high and swing low (purple Fib). There will be minor targets along the way such as the -27.2 at 107.75 (blue Fib).
It is primarily the USD which is gaining the most terrain against the JPY. Other Yen pairs are not as interesting, mainly because the USD is also in a trend versus the EUR, GBP, and NZD (AUD remains in a consolidation). Hence, it is an easy way of (de)selecting pairs.
Although it is not as interesting as the USDJPY, I still want to present one more JPY pair which is the NZDJPY. Let’s review.
The main reason for my interest is the break of a big top (red line). The NZDJPY closed with a daily candle above the resistance layer and near the daily high (bulls did not lose control), which indicates a good breakout candle (purple) and price is gaining momentum vis-à-vis the Yen. It also broke an ascending wedge chart pattern (light orange) to the upside.
This breakout could have a decent wide open space (blue) till the next resistance (dark red). Any stop loss (orange) is best placed below the bottom.
What are your targets on the UJSDJPY and NZDJPY? Are you planning to trade them? Looking forward to your comments!
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