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Price action in USD/JPY has been consolidating back to 119.00 often over the last few months.  Will this latest retest be another opportunity for a lift higher?

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

USD/JPY 4 Hour Forex Chart
USD/JPY 4 Hour Forex Chart

Since hitting a high at 122.00 in March, USD/JPY has been on a slow and steady grind lower, making lower “highs” but finding strong support between 118.00 – 119.00. Fundamentally, this could be attributed to the Bank of Japan (BOJ) being less willing to increase easy money policies lately, and the potential Fed monetary policy tightening based rally in the Greenback seemingly overdone.

In the big picture, monetary policy is not likely to change in that the BOJ will keep their low rates and bond purchasing program for some time to get inflation up, while the Fed (who recently ended their bond purchasing program) is likely to raise rates this year or next. Of course, anything can happen to change those stories in a heartbeat, but that’s current outlook so I’m going to go with it.

Technically, it’s a very simple setup as I look to go long at the rising trendline and the area of previous major support.  I’ll scale into a long position at the major psychological levels, and my stop will be a wide one of a little over one WATR to hopefully weather what could be a longer-term trade.  My initial target is the next major psychological handle after the 120.00 handle.  Here’s what I am doing:

Long half position at 119.00, stop at 116.50, profit target at 125.00

Long half position at 118.00, stop at 116.50, profit target at 125.00

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 follow what I do. Risk Disclosure.

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 about 3.25:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.