Trade Idea: Long-Term USD/JPY Correction

I’ve been patiently watching this USD/JPY long-term break-and-retest setup for quite some time, and I think I’m getting enough confirmation to take a long position. Take a look!

USD/JPY Trade Idea

On the pair’s weekly time frame (Yep, I’m talkin’ really long-term here!), it can be seen that price has pulled back to the broken descending trend line that extends all the way back to 1998. Since USD/JPY usually respects these technical levels, price stalled upon hitting the broken resistance around 100.00-101.00, which is actually a pretty strong area of interest.

The pair consolidated right there for a little over three months, trying to decide whether to head further south or to resume its climb. Just recently, the U.S. election results spurred a break above the short-term range, confirming that dollar bulls are back in the game. Stochastic is also heading north once more so price could follow suit.

USD/JPY Daily Forex Chart

USD/JPY Weekly Forex Chart

By the looks of it, market participants are staying optimistic about U.S. economic prospects under incoming President Trump’s leadership, predicting that fiscal stimulus could help shore up growth even if the FOMC decides to tighten monetary policy. U.S. equities have been on the rise in anticipation of lower corporate taxes and higher infrastructure spending, which reflects investor confidence in U.S. companies.

In contrast, the Japanese economy looks like it could use more stimulus. The BOJ has been a bit vague with its monetary policy plans, but economic figures from Japan suggest that the central bank won’t be reducing its QQE program anytime soon. Besides the yen is also giving up its recent pre-election risk-off gains so the odds seem to be in the dollar’s favor on this one.

Of course I’m still gonna keep tabs on upcoming market-movers from the U.S. economy, particularly the retail sales and inflation reports. I’ll also see if I can make adjustments ahead of Fed Chairperson Yellen’s speech on Thursday’s New York trading session since she might have some surprises up her sleeve.

Here’s what I’ve got:

Long USD/JPY at market (107.75), stop loss at 105.75, initial PT at 109.75 for a 1:1 return-on-risk. I’ve risked 0.25% of my account on this position and I’m open to adding more on a pullback or a break past 110.00.

As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

Risk Disclosure
Pipcrawler’s Q3 2016 Blog Trading Performance