Break and Retest Play on USD/JPY

I don’t always see technical setups as good as this, but when I do, I take it!

USD/JPY 4-Hour Forex Chart

USD/JPY 4-Hour Forex Chart

From a technical standpoint, this setup on the 4-hour chart could not be more attractive:

    1. USD/JPY is back at the 102.70 area, which was a solid resistance level back in February and is near the 38.2% and 50% Fib retracement levels.

    2. The pair is retesting a broken rising trend line.

    3. Stochastic is currently on the oversold territory.

    4. My 100 and 200 SMAs have just crossed and hinted at an uptrend. The last two SMA crosses on the 4-hour charts have been accurate at hinting new trends.

The fundamental side is a bit trickier. USD/JPY is having trouble making new yearly highs even though the Fed has hinted that it will continue to taper at its current pace and the BOJ has said that it will continue to expand the monetary base by 60-70 trillion JPY a year. Concerns over Ukraine‘s political scene and China’s growth have also weighed on the yen crosses and limited USD/JPY’s gains.

This is why I didn’t risk my usual 0.50% on my trade. I only risked 0.25% at 102.70 and placed a 100-pip stop. I figured my trade idea would be invalidated if price fell below the rising trend line (at 102.70), the SMA crossover (102.20-ish), and the 102.00 major psychological handle.

I will also pay closer attention to news reports more than what I’m doing with my GBP/USD trade. After all, the RBNZ’s rate decision, Australia’s jobs numbers, and China’s industrial production could hurt my trade if they inspire more risk aversion. The U.S. retail sales could also cause USD selling if it misses market expectations.

Right now I’m planning to be around these major releases and adjust my position accordingly. I’ll probably add the remaining 0.25% risk if price goes back above 103.00 or close early if the major reports I pointed out go against my trade.

What do you think of this setup? Got any tips? 🙂

XOXO,

Huck

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  • Alex Findlay

    I really like your analysis. I little hesitant but bought at 102.76 and added to it at 102.60 after I read your blog. My thinking was that the USDJPY had little movement when the USD Index fell by a sudden 15 points tonight. I also like the way the 100 and 200 SMA are embedded in the Ichimoku cloud. The 200 SMA also lines up at S2 at 102.27 so my stop points set at 102.12 to allow for stops to be triggered. WIN WIN GO GO

    • Hucklekiwi Pip

      Too bad this setup didn’t work in my favor. Are you out of your USD/JPY positions already?

  • Anon

    Can anyone explain the SMA cross being a buy signal in this instance?
    Thanks!

    • Hucklekiwi Pip

      When I made the trade I saw that the last 2-3 SMA crosses correctly predicted a trend. It didn’t work this time, unfortunately.

  • I keep it simple, i abide by the analysis of 20-50 ‘experts’ who all use the same techniques over and over again and have been doing this for years. It would actually be a waste of time for me to do the same thing all of them are doing. So if 49 out of 50 say then i say well … as long the usdjpy doesnt hit 105 i know what direction to go, though not for the single day ofcourse, but by now im more like as long as 104 since the us seems to pick up slower than expected and the neuro is making moves i can not understand given the real situation, its all speculation by the EU on how much they will grow by 2015 if i understand correctly so like the us that might go euh … slower than expected in the long run giving that pair into heavy correction at some time, it might not but that 1.44 level again would indicate the situation versus the us would be as it was those years ago, and its not, both are down … but this is a yen post, yea, depending on your nightly rollover ofcourse up to 103 cant possibly go wrong except the fact that in forex theres always a jackinthebox hiding which might make things go wrong ofcourse, i post like a babbling brook but theres some clarity in the water here and there, i know i know

  • Bunny Girl

    Hello Huck!

    I like very much your analysis too, I`m also in this trade. I hoped at 102.65. I think this is a good long-term setup, there is a bullish pennant on monthly chart and the bullish triangle on weekly chart is still playing on. I was wondering if I should go long in EUR/JPY and GBP/JPY also, because there are chart patterns bullish signals too, but I am considering the market sentiment for potential EUR/USD sell off, so I`ll be looking at the price action at these pairs. I think on EUR/USD there is MACD divergence developing at H4 chart.
    Good luck!

    Bunny Girl 🙂

    • Hucklekiwi Pip

      Hi Bunny Girl!

      I’m still bearish on the yen in general but I guess the dollar bears have other ideas for the pair at the moment. Are you still in your USD/JPY trades?

      • Bunny Girl

        Hi Huck!
        As you said, the trade was in some profits after US retail sales release, and later when the pair drop severely I wasn`t in front of the computer. Later I saw my trade in 100 pips drawdown and I exited… I learned something: I should put my sl at breakeven point… I don`t see a good entry point for now for the yen pairs, I keep looking at price action. I agree with you the yen pairs downside bias is not over yet.

        Cheers,

        Bunny Girl

  • François Loneux

    Hi there!

    As always it’s great to read you Huck. I actually became a fan; I like your approach and psychology of trading the most. It’s somehow refreshing me.

    I’d be wary about that setup though considering the recent events in Ukraine and the associated risk aversion.

    Technically it’s perfect but if Russia’s next move after effectively annexing Crimea is to move inland to take Southern and Eastern territories then there will be a sharp turn.

    Money management also perfect (wouldn’t bet more than 0,25% on this one) 😉

    Sorry for my mistakes as I’m not an English native speaker and best continuation!

    François

    • Hucklekiwi Pip

      Hey Francois,

      Thanks a lot for your two cents! You’re right about Russia’s issues taking its toll on yen pairs. It also didn’t help that US bond yields are consistently dropping. I probably should have widened my stop loss on this one or at least waited for a better entry. Fingers crossed for a better trade idea this week!

  • Tell me something Huck, did you make the trade? what happened on todays elephant in the china cupboard there ? Stop out or not, im not wanna be gloating or anything im just cuwrious on the closeness of stops and how they seem to attract that sneaky snake on the chart. It went just a little below .7 there and seems to have stabilized, unless the dollar brings bad news i suppose since todays figures werent half bad the pair should start to bull again pretty soon ?

    • Hucklekiwi Pip

      Yep, I made the trade and took a 0.25% hit on my account. I guess I could have used a wider stop loss on this one. Did you have USD/JPY trades last week?

  • simon wong

    Hi Huck,

    I would like to offer some of my tips on how to improve your analysis in this setup.

    I have got the feeling that you are basing your setup on prices bouncing off the upward sloping trendline support. The other indicators such a the SMA crossovers and oversold stochastics are used as bullish confirmation signals.

    The strategy to trade on a bullish retracement is a good one. However I feel your buy trigger at 120.70 is a bit premature for the following reasons.

    1. Normally I would like to see prices testing the trendline support several times and holding before deciding whether the support is valid or not. If prices close below the trendline support, then it is a warning that prices may fall further.

    2. Indicators like stochastics can stay oversold for a long time. I think it is better to wait for the stochastics to turn up before buying. In my experience, I think stochastics is most useful when they are used as a divergence indicator or when they start to reverse after a peak or a bottom. Waiting for confirmation is important.

    Remember buying falling prices is like trying to catch a falling knife. It is better and less risky to wait for confirmation of a bottom and a reversal of that bottom before committing.

    Hope this helps. Good luck on your trading.

    • Hucklekiwi Pip

      Hi Simon,

      Thanks for your advice! I particularly like what you said about Stochastic staying in overbought/sold regions for quite some time. This is something to remember for my next trades. I hope I can spot better setups this week.

      Thanks for reading my blog and giving your opinion!

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