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Here’s a technical setup on USD/JPY that may draw in the bears ahead of top tier economic events from the U.S., as well as volatile geopolitical catalysts.

USD/JPY Returns to the Downtrend?

USD/JPY Daily Forex Chart
USD/JPY Daily Forex Chart

On the daily chart above of USD/JPY, we can the see the pair has been in a downtrend since 2018, but has been in a short-term uptrend since August of this year after bottoming out at the major psychological level of 105.00. That uptrend is now testing a strong area of interest around the 109.00 handle, and we can see a divergence between price action (higher ‘highs’) and the stochastic indicator (lower ‘highs’) signaling a potential reversal ahead.

And I think that reversal may be on its way as traders sour on the dollar, not only on the negative turn to recent developments in the U.S.-China trade negotiations (Trump says it might be better to wait until after 2020 election for a China trade deal), but also on weak readings from the U.S. economy.  Just yesterday we got a negative read on U.S. business sentiment from the ISM manufacturing PMI report (showed the US remains in contraction territory), and we may get another weak reading with the latest U.S. employment update later this week (ISM showed the employment is contracting at a faster pace).

With those arguments, I’ve decided to short USD/JPY now with a nibbler and stay open to add a second position, depending on the data and the market’s reaction. My stop  will be around one weekly ATR. My max target will be the 2019 lows, but I won’t hesitate to take profit if the situation changes. Here’s what I’m doing:

Short half position USD/JPY at market (108.57), max stop at 110.20 with 0.50% max risk, max target at 105.05

I’ll be risking 0.50% of my account to start for a 2.15:1 return-on-risk, and again, I will look to add to the position after reviewing what we get from the upcoming U.S. employment update and if the global trade story remains negative. If that situation turns positive or the U.S. surprises with very positive employment data AND USD/JPY turns bullish, I will be sure to cut my trade quickly to limit any losses.

That’s it for now. Stay tuned for updates and 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.

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.