Trade Recommendation: USD/JPY

The US Dollar/Japanese Yen pair (USD/JPY) started its uptrend in April 2013 when it took out resistance of 95. The breakout triggered the large rounding bottom reversal pattern on the weekly chart. This attracted momentum traders and trend followers who helped push the price to as high as 125.849 in June 2015. In two years, the US Dollar grew by over 30% against the Japanese Yen.

At this price level, the target of the rounding bottom reversal pattern was hit. Those who bought the breakout began to take profits. The heavy selling drove the pair down to 116.127 in August 2015. Bottom fishers bought the dip but they could only lift the pair to as high as 123.746 in November 2015. The lower high was a clear signal that the uptrend is over.

In February 2016, the market broke support of 115. The price action triggered the head and shoulders reversal pattern on the weekly chart. This ignited a selling frenzy that saw USD/JPY plummet to as low as 98.974 in June 2016, which is the 50% Fibonacci level. The market has been rallying since. It appears ready to spark another bull run.

Technical analysis reveals that the US Dollar/Japanese Yen is poised to take out resistance of 115. This would trigger the cup and handle reversal pattern that’s brewing on the weekly chart. In addition, the pair appears to have recovered its long-term uptrend support after bouncing from the 68.1% Fibonacci level.

The strategy is to buy the breakout of 115. Once breakout is complete, the pair may take out 125 resistance first before it can move to our target of 130.

The process may take six months.

Weekly Chart of USD/JPY on Forex.com

As of this writing, the US Dollar/Japanese Yen pair is trading at 109.492 on Forex.com.

Summary of Strategy

Buy: Buy on breakout of 115.

Target: 130

Stop: 112.5 after the breakout.

 

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.