In my May 7th trading blog I identified a bullish signal for USD/JPY and since then we reached our first target. However, this week, our USD JPY trade reversed back below the Ichimoku cloud. With political tensions intensifying in the US, and Japan printing better-than-expected GDP results, it is time to conduct yet another IDDA to help you develop a trading strategy for this naughty forex pair.
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1- Technical Points: USD JPY Trade Reversed Below Ichimoku
Daily Time Frame: After the massive sell-off on Wednesday, the USD/JPY pair opened below the daily Ichimoku cloud on Thursday’s Asian session. It quickly corrected back towards the key pivot of 111.68, and then consolidated. Based on our Ichimoku Secrets strategy, the correction could be an interesting time to open a short position for traders with medium to high risk tolerance. We do not have the other points of the Ichimoku Kinko Hyo confirmed at the time of writing. The daily cloud is pretty flat. Besides the massive bearish engulfing that helped the pair break below both our pivot levels, we don’t have more bearish confirmations at this point.
Fun Fact: Invest Diva group members made delicious pips on USD/JPY at first profit taking level at 114.29 last week, based on the trading signals we shared in the group.
USD JPY Trade Reversed Below Ichimoku – Daily Chart Technical Analysis
The medium term support levels are set at 109.41 and 107.32 respectively.
Monthly Time Frame: On the monthly chart, the pair remains supported by monthly Ichimoku cloud. The monthly USD JPY trade reversed to form a Hammer Doji in the month of May followed by the Spinning Top candle of April. This is literally doubling down on market indecisiveness from a long-term point of view.
USD JPY Trade Reversed – Doji Candlestick – Monthly Time Frame
As monthly USD JPY trade reversed as well as the daily, we could see a potential angled Double Top forming with neckline at 101.69. But for that to happen, the pair needs to break through the upward moving, thick, monthly Ichimoku cloud. It also could take months to confirm. So I’d say let’s wait for more confirmations for long-term traders, shall we?
2- Fundamental Points
The second point of the IDDA suggests looking at the economic and political developments that could impact the currency pair.
US Side: Oh man. With one controversial scandal after another, the Trump administration has been sending shock waves on Wall Street. The US stocks tanked on Wednesday as speculations of a Trump impeachment increased, even among the Republicans. With that, the US dollar followed suit and dived down.
According to Bloomberg, chances of a June rate hike has now dropped to 60% from 80%. “Time to dump the USD?” said Wall Street.
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Coming up: Initial Jobless Claims on Thursday at 12:30 PM GMT.
Japan’s Side: Good stuff! Japan Q1 GDP showed fifth straight quarterly gain on Thursday’s Asian session, at faster pace than expected. Much of the improvement was export-driven, but it wasn’t clear whether that would continue, particularly as demand for autos in the U.S. appeared to be dropping.
Gross domestic product grew by an annualized 2.2 per cent in the three months ended March. That’s up a full percentage point from growth of 1.2 per cent in the December quarter and came in comfortably above a median forecast from economists surveyed by Reuters predicting growth would tick up to 1.7 per cent.
Under normal conditions, better-than-expected GDP results should strengthen the Japanese Yen, resulting in further drops in the USD/JPY pair.
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3- Market Sentiment
Market sentiment analysis is the 3rd point of the IDDA. Retail trader data shows 55.7% of traders are net-long, even thought USD JPY trade reversed! The percentage of traders net-long is now its highest since May 01 when USDJPY traded near 111.866. The number of traders net-long is 10.8% higher than yesterday and 6.8% higher from last week, while the number of traders net-short is 20.0% lower than yesterday and 18.0% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias.
Trading Strategy as USD JPY Trade Reversed
As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. We normally do not recommend speculating and trading before risk events. Join us in our strategy development room by becoming a member of our investing group to learn more.
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Disclaimer: Forex is one of the HIGHEST risk investing instruments there is. If you don’t have sufficient risk tolerance to trade forex, you can try investing other online securities.
Combining all points of the IDDA, here are Invest Diva’s calculations for important approximate levels to keep an eye on:
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 107.32 | 111.38 | 114.29 |
| 109.41 | 112.84 | 115.73 |
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