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They say the trend is your friend…until it ends. This week I’m looking at USD/JPY‘s forex downtrend a possibility of a longer-term trade on the pair. What do you think?

With GBP/USD eluding my entry orders for the past couple of days, I’ve set my eyes on a possible trend continuation for USD/JPY. As you can see on the chart below, the pair has been contained by the 100 and 200 SMAs since mid-December. It’s also showing a bearish divergence, right around the time when it’s hitting the SMA resistance levels.

USD/JPY: 1-Hour Forex Chart
USD/JPY: 1-Hour Forex Chart

On a fundamental basis, I think that the yen still has room to strengthen. For one thing, risk aversion looks like it’s here to stay. Until oil and other commodity prices stop falling day after day and central bankers become more optimistic over their growth and inflation targets, forex traders will find excuses to ditch high-yielding currencies in favor of low-yielders like the yen.

There are threats to USD/JPY’s downtrend, of course, including the Fed’s plans to raise its rates sometime this year and the possibility that the BOJ would act to weaken the yen once again. Fortunately for yen bulls, BOJ’s Kuroda sounded optimistic enough in his speech in Parliament today and eased concerns of more easing in the near future.

Considering the potential extension of overall risk aversion and yen strength, I’ve decided to take advantage of the divergence on USD/JPY’s chart.

Here’s what I’m planning for this setup:

Shorted quarter position at market (117.05), max stop at 119.00, initial profit target at 115.00

Short quarter position at 118.00, max stop at 119.00, initial profit target at 115.00

Fingers crossed that the trend would hold! How about you? Got any open positions on the yen this week?



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