Trade Idea: USD/JPY to Extend its Downtrend?

Who else is on team yen these days? If you are, then you’re gonna love USD/JPY’s downtrend that I’m trading this week!

As you can see below, a falling trend line has been keeping USD/JPY’s contained since the start of March.

USD/CHF 4-hour Forex Chart

USD/CHF 4-hour Forex Chart

And why not? Weak U.S. reports, profit-taking from hawkish Fed expectations, and Trump saying that the Greenback is “getting too strong” are pretty good reasons to stay away from the dollar these days.

Meanwhile, geopolitical skirmishes over in Syria and North Korea are driving traders into the arms of the low-yielding yen. In addition, U.S. Veep Mike Pence is meeting with Taro Aso this week, so some investors are expecting Japan to let its currency strengthen a bit to avoid being labeled as a currency manipulator.

With those in mind, I’m expecting USD/JPY’s downtrend to continue over the next couple of days. The 110.00 major psychological handle is a good place to short, as it lines up nicely with the falling trend line, 100 SMA, and 50% Fibonacci retracement on the 4-hour chart. I can put my stop loss around 200 pips away, which would put it above the trend line and last week’s highs.

USD/CHF 4-hour Forex Chart

USD/CHF 4-hour Forex Chart

But if the pip gods decide that the retracement play is too beautiful and drag USD/JPY lower without a bounce higher, then I’ll also prepare for an entry somewhere below the 108.50 mark.

Since it’s already below the 200 SMA on the daily time frame and the area of interest on the higher time frames, I’m pretty sure a move below those levels would indicate further downside momentum.

The 107.50 bottom WATR area is a good place for an initial profit target if I do enter at 110.00. I will keep my eyes on the 104.50 area of interest though, as it would give a good reward-to-risk ratio whether I enter at 110.00 or at a downside breakout.

What do you think?

Huck's Signature

Oh, don’t forget to read the risk disclosure!