Short-Term Peak Likely at ¥125

Very high volatility hints that a bullish climax has occurred.

Last Thursday’s signal was not triggered as the price did not retrace to any of the indicted support levels.

Today’s USD/JPY Signals

Risk 0.75%.

Trades must be taken before 5pm Tokyo time Wednesday.

• Go short following a bullish price action reversal on the H1 time frame immediately upon the next touch of 125.00.
• Place the stop loss 1 pip above the local swing high.
• Move the stop loss to break even once the trade is 30 pips in profit.
• Remove 50% of the position as profit when the price reaches 30 pips in profit and leave the remainder of the position to ride.

Long Trade Ideas

• Go long following a bullish price action reversal on the H1 time frame immediately upon the next touch of 123.11 or 122.23.
• Place the stop loss 1 pip below the local swing low.
• Move the stop loss to break even once the trade is 30 pips in profit.
• Remove 50% of the position as profit when the price reaches 30 pips in profit and leave the remainder of the position to ride.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

USD/JPY Analysis

I wrote last Thursday that the price was now trading in “blue sky” with no obvious resistance level overhead to stop it until 123.67. I was looking for a long trade from a retracement to 120.50 or 120.00.

This was a good call overall as the price continued to advance strongly last Thursday, although unfortunately there were no such retracements to give a long trade entry. However, I was correct about the direction.

The price of this currency pair and all the Yen crosses continued to rise strongly over recent days. The fundamental driver behind the heavy weakness in the Yen over recent week’s has been the Bank of Japan’s standout dovish monetary policy, which in turn has been driven by Japanese inflation rates remaining considerably lower than the Bank’s 2% target – and this at a time when almost all other major economies are dealing with the problem of strongly rising inflation and tightening monetary policy accordingly.

This rise was given an even stronger boost during Monday’s Tokyo session when the Bank of Japan announced that it would buy unlimited amounts of bonds at a fixed price, leading traders to dump the Yen even more heavily. The price rose quickly by almost three times typical recent daily volatility as measured by the Average True Range (ATR) indicator, peaking just above the big psychological round number at ¥125 before retreating by more than a day’s average range. This seeming volatility climax suggests that we will not see new highs above ¥125 today, and probably not for a few days more either.

The price will be likely to begin to consolidate by trading in wide swings, giving opportunities to both long and short traders. As volatility remains high, being nimble and monitoring trades on short time frames will probably be key to trading success here today. There are still key support levels below which can be expected to be useful as long trade entry points, but for short trades, there are no key resistance levels below ¥125 so you will likely need to find price action reversals on the H1 or H30 chart to find good short entry points.

Concerning the USD, there will be a release of JOLTS Job Openings data at 3pm London time. There is nothing of high importance scheduled today concerning the JPY.