Now that we’re past the FOMC meeting and it doesn’t look like the BOJ will make any major changes to policy today, I think it’s time to take another look at USD/JPY.
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101.50 has been the buy spot for USD/JPY, probably the most reliable support area among the majors all year long. It looks like the market is on its way back down to retest the area ever since we saw Janet Yellen’s dovishness at this week’s FOMC meeting, and with no major changes to U.S. or Japanese monetary policy recently–or in the near future–I think there’s a good chance that area could hold again for now if retested.
Also, the consolidation behavior has a good chance of continuing as we hit the typically low volatility summer season, barring any big surprises over the next few months.
So, I’m putting orders up on this pair for a simple range play. The other side of that strong support is the resistance area around the 102.50, which has reversed the market just as much as 101.50 has held. My profit target is there and my stop is below the 2014 low of 100.73. Here’s what I’m doing:
Long USD/JPY full position at 101.50, stop at 100.50, max profit target at 102.50
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of 1:1. With this type of rangebound behavior, and the lack of any major catalyst coming up on the forex calendar, I think expecting more than 1:1 is unrealistic, but it’s a good trade because of the high probability that 101.50 will hold–for now.