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Here’s a quick forex trading setup for those who are looking to jump in on the dollar’s downtrend. Think the retracement will hold?

As you can see, USD/JPY just can’t trade above the 109.80 levels, which is in line with a 50% Fib as well as a falling trend line resistance AND this week’s broken bottom weekly ATR level.

Stochastic is also flashing an overbought signal, so it’s not too far-fetched to price in more losses for the dollar.

USD/JPY 1-hour Forex Chart
USD/JPY 1-hour Forex Chart

The fundamental picture has hardly changed despite yesterday’s surprises.

For newbies out there, you should know that the dollar has been losing pips all month thanks mostly to (a) profit-taking from last year’s FOMC rate hike spree; (b) other central banks’ hawkishness (like ECB, BOJ, and PBoc) making other currencies more attractive, and (c) overall risk-taking at the start of the year.

The Greenback got a short reprieve yesterday when the Donald himself hinted that he’s okay (and even prefers) a strong dollar. This is right after Treasury Secretary Mnuchin shared that a weak currency would be beneficial to Uncle Sam’s trade opportunities.

But if today’s Asian session price action is any indication, it looks like traders aren’t done selling the Greenback just yet.

Shorting at current levels could still give us a few pips especially if USD/JPY makes new monthly lows today. Gotta be careful about today’s U.S. Q4 2017 GDP release, though!

While most of the January releases have come in worse than market players had expected (this time at 3.0% in Q4), it’s also possible that traders will use the event as an excuse to take profits from their short dollar trades. That is, any sliver of good news can be magnified by profit-taking.

Be careful trading this one if you’re planning on jumping in!

See also:
My Q4 2017 Forex Trade Review and Reflections
Latest version of the HLHB Trend-Catcher System

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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.