Forex Watchlist: USD/JPY Major Correction?

I’m a bit bummed out about closing my previous long USD/JPY position too early but I’m still hoping to catch this uptrend on a larger pullback. Here are the levels I’m watching.

Long USD/JPY

The pair seems to be hitting a ceiling near the 111.00 major psychological level so a bit of profit-taking could happen at this point, allowing price to pull back to nearby support areas. Stochastic looks ready to head south so a brief selloff could be due. Applying the Fibs on the latest swing low and high on the 4-hour chart shows that the 50% and 61.8% levels cover a former resistance area, which might now hold as support.

USD/JPY 4-hour Forex Chart

USD/JPY 4-hour Forex Chart

I haven’t set any actual entry orders yet since I plan on watching how price reacts to these correction areas before going long. If reversal candlesticks form around the 38.2% Fib, I could hop in with half my usual position at the 107.50 area then just add on larger pullbacks or a break past the swign high.

I’m keeping my bullish USD bias because of Fed head Yellen’s recent speech wherein she reiterated that the central bank must start tightening monetar policy to give room for increased fiscal stimulus without causing the economy to overheat. This seals the deal for an interest rate hike this December, which might keep the dollar supported until the end of the year.

In contrast, the Japanese yen could keep losing ground as traders price in stronger odds of more BOJ easing. Data from Japan has been far from impressive and this week’s batch of inflation reports might reflect more weakness. However, USD/JPY could still pause from its climb towards the end of the week when traders book profits off their long positions ahead of the Thanksgiving holidays.

I’m looking at potential long orders around 105.00 to 107.50, and I’ll be setting my stop below the swing low or the 101.00 handle. My initial target is at the swing high near 111.00 but I’ll consider aiming higher and trailing my stop depending on how strong bullish momentum gets.

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

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