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Revisiting my short position in USD/JPY which hasn’t gone much of anywhere lately.

But we do have a potential USD catalyst ahead this week, so I decided to adjust my plan to take advantage if the market plays out in my favor. 

USD/JPY Downtrend Pullback

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

At the beginning of August, I decided to short USD/JPY to play the broad negative U.S. dollar bias after the pair bounced off of a strong move lower. I took a half position at the Fibonacci retracement area of the bounce with only 0.50% risk.

Since then, it’s been a net negative move for the Greenback against the majors, with exception against the yen. It’s likely the slight lean towards positive in broad risk sentiment may have played a role in that, as well as generally disappointing economic updates from Japan (Japan’s economy shrinks at record rate, slammed by pandemic).

Looking forward, we’ve got the Jackson Hole Economic Symposium this week (a meeting of the world’s central bankers), and word on the street is that we may get a big announcement from the Federal Reserve on potentially new actions to spur inflation, which therefore could mean more pressure on the Greenback going forward.

From a price action perspective, after forming another lower ‘high’ in mid-August (which I probably should have added to at that time) and dropping soon after, the pair is now back to the falling trendline with stochastic signaling potentially overbought conditions. Resistance could form once again as this pattern may draw in technical traders.

So, I decided to add my second half position, shorting at market (106.40) with an additional 0.50% risk. My average position price is now 106.08 and my max risk is a low 1.00% at my stop of 107.60.  My new potential return-on-risk is about 2.8:1 at my target of 101.75. 

So, let’s see where this week’s events take USD/JPY, and if the pair moves back lower in my favor, I may add to this position depending on what we see from the Jackson Hole event.

That’s it for now.  Stay tuned 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.

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