Possible Bottom in US Dollar (USD) vs Japanese Yen (JPY) Forex Chart

There are indications that the USD is finding a bottom in the long-term chart against the JPY.

1) Chart Analysis

The weekly USD/JPY chart displays a long-term downtrend starting July 2007. This trend is defined by

• the lower lows in March 2008 (95.55) and Dec 2008/ Jan 2009 (87.10)
• the lower highs in Aug 2008 (110.60) and April 2009 (101.40)

Indications that the long-term downtrend might be exhausted

• No lower low was established since January 2009 (7 months). The time between the former lower lows was 8 months (Jul 07 to Mar 08) and 9 months (Mar 08 to Dec 08)
• The last low (support at 87.10) was tested and holding twice (Dec 08 & Jan 09)
• Since late Feb 2009 the chart is “almost” in a sideways range between 94.00 and 99.00 (with breakouts in April 09 at 101.40 and July 09 at 91.75
• The daily chart (see below) displays lower highs within that range (101.40, 99.80, 98.80, 97.80). However, the decline since the last lower high (April 09, 101.40) seems slow down significantly compared to the previous declines 07/07 to 03/08 and 08/08 to 12/08

2) Fundamental Analysis
Fundamental reasons why the USD could raise vs the JPY are presented here

http://www.bloomberg.com/apps/news?pid=20601083&sid=azC.43anvdTY

http://www.cnbc.com/id/15840232?video=1193259733&play=1&__source=RSS*tag*&par=RSS




3) Possible Forex (FX spot) Trading Strategy

• The USD/JPY pair moved from a downtrend (lower highs, lower lows) into a sideways range (lower high, higher low). To establish an uptrend (= higher high, higher low) a high above 101.40 would be necessary
• Currently the pair is trading at the lower end of the sideways range at 94.00.This support level hast been tested and held up in 03/09 and 05/09. In 07/09 the support was broken, but priced pulled back into the range
• A long entry now (Aug09, 94.00) is a high risk/ high reward strategy. Capital should be limited
• Reward: Move upwards within the range up 97.00 – 97.50
• Reward: Possible to catch the bottom/ turn around in the long term trend. A new high above 101.40 would establish an uptrend on the weekly chart (higher low/ higher high)
• Risk: Fallback to previous lows at 91.80

Possible Trade Setup

• A reversal pattern (like Hammer or Morning Star) on the 4hr or daily candlestick chart around the 94.00 support level could indicate a reversal in price movement
• Entry depending on the level at the reversal pattern: 94.00
• Take-Profit (TP): 97.00 - Based on the former highs/ resistances. Taking only a part of the profit at 97.00 and moving the Stop Loss (SL) up to breakeven for the outstanding position is another possibility
• Stop-Loss (SL): 92.90 – Based on a risk/ reward ratio of > 1:2 and former lows
• Money Management: Limit the position size so that the maximum loss of 110 pts (94.00 – 92.90) does not risk more than 2% of your trading capital
• Do not enter without a reversal pattern on the 4hr or daily candlestick chart. The price may breaks the 94.00 support and continues to fall to lower resistances at 91.80 or even 87.00
• This is a medium/ long term setup. The initial target of 97 could be reached within 1-2 weeks
• Event Risks: On Thu, 27 Aug 2009 and Fri, 28 Aug 2009 a number of important data regarding the Japanese and American economy gets released ( JPY Manufacturing Index, JPY Jobless Rate, JPY Household Spending, JPY Consumer Price Index, US GDP, US Personal Consumption, US Jobless Claims, US Income, US Confidence Index). These may impact the exchange rate strongly. Waiting for next week (starting 31.08.09) might be better

Warning: Forex Trading involves significant risk of loss and is not suitable for everyone. All the information on this site is provided "as is" for INFORMATIONAL PURPOSES ONLY, not intended for trading purposes or advice.