USD/JPY: Shorting On A Pullback – Trade Closed

Trade Closed: 2013-5-7 00:01 am EST

USD/JPY 1-hour Chart

I jumped in on a short when I saw that the yen got sold off following the ECB rate decision. Resistance at the 98.00 handle held and a bearish candle materialized right smack at the major psychological level. I took that as a sign that USD/JPY was about to head lower so I shorted at market and got in at 97.86.

Price consolidated around the handle until the NFP release. But unfortunately for me and contrary to what the ADP report hinted, the NFP data posted an upside surprise and boosted the dollar. Consequently, I got stopped out of my trade faster than you could shout, “Oh no!”

Sold USD/JPY at 97.86 stopped out at 99.00: -114 pips/-1.0%

Been losing a lot lately. I wonder… When will I be able to turn this around?

Trade Idea: 2013-5-2 3:20 am EST

USD/JPY 1-hour Chart

First of all, let me touch upon the technical aspects of the trade. As you can see, the pair is starting to move lower, convincingly breaking through both the 200 and 100 SMAs. I believe the trend will continue lower but not before pulling back.

So, using the trusty Fibonacci tool, I looked for a good entry point. I determined that I could probably jump in short around the 38.2% and 50.0% levels. What makes these levels so attractive to me is that they nicely line up with the 200 SMA and a previous support level.

As for my stop, I’ll put it at 99.00, well above the 61.8% Fib. I’m ultimately aiming for new lows but I’ll take some profit off the table at the most recent swing low.

More than this sweet setup though, I’m shorting the pair because I think the dollar is fundamentally weak. Since the horrendous NFP report for March, we’ve just been getting disappointing data from the U.S. one after another like the Q1 2013 GDP and ADP report for April.

On the other hand, the yen’s fundamental landscape seems to be relatively rosier than the dollar’s. From what I’ve heard, Japan’s economic outlook has just been upgraded!

Tomorrow, the U.S. NFP report for April will be released. I don’t expect the figure to post any upside surprise given the recent signs of weakness we’ve been seeing from the U.S. Should it come in worse-than-expected, it would just paint an even bleaker fundamental background for the dollar and could only spur demand for the yen even more.

To recap, here’s what I plan to do:

Short USD/JPY between 98.00 to 98.40. Stop at 99.00. PT1 97.00, PT2 to be determined. Risk disclosure.

What do you think? Would you take it too?

XOXO,

Huck

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  • nithin

    Is your call fundamental or technical?

  • vishak

    For what time frame would you think the PT will be triggered?

  • harel

    breaking upward the 98.5 will create reverse head and shoulder in 4H with target of around 100.