USDJPY: cliff diving or lighter than air?

USDJPY: cliff diving or lighter than air?
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The summer markets are always less than ideal trading conditions. “Sell in May and go away” is advice stock investors offer around this time and even in the currency markets there are times in feels true.    Last week there were 24hr pip change totals that varied between 5-8 pips on four different major currency pairs at the same time.  Yes, that’s right, in 24hours price basically started and ended at the same price.  It’s not that price didn’t move at all during the day but price would react to news then retrace back to where it started making it a trader’s market if you were in the right place at the right time.  Even as I write this, the EURUSD has only 3 pips of 24hr change  in a day that ranged 104 pips from top to bottom.

What this style of movement does offer is very nice retracement opportunities especially when they are combined with your normal established trading style.  The USJPY is setup for exactly that type of move.  In looking at a daily chart we can see that price rallied strong on July 11 and 12th then managed to grind its way up into the area around 113.00.  The 113.00 price level is what’s called a round number and the .00 will always act as a magnet for price.  The reason this particular instance is attractive for traders is what occurred December 12, 22nd and January 8th.  Three descending lower highs in the market formed a supply area that turned price around the last two days. 

There is nothing to say price won’t attempt a third shot to push higher but its going to need more juice than what it currently has.  The alternative direction actually offers an easier path for price to take and the price rally on the 11th offers much less resistance for a  potential 100 pip profit. 

Taking the chart down to a 1hr chart, you can see 3 elongated candles from 10am-12pm and the only pullback was a 10-pip area from 111.50-111.60, again a psychological level for both humans and machines alike. 

Price has already travelled lower than where it currently stands and the 112.00-111.90 area will offer a bit of demand entering the market.  Friday does not offer traders many high impact news releases for the USD or JPY but Day 1 of the G20 meetings could offer a spark to take price up right to the edge of that cliff.  The way price gets down to 112.00 will tell a lot about how long this move will last and this may be something traders set an alert for when price crosses 112.00 to see what levels of supply have formed above and what potential news could make this pair tumble back to 111.00.   

An alternative to the immediate collapse, and most likely more near term is price grinds its way back up to 113.00 retracting the levels it lost in Thursday’s trading before ending the week and setting up the potential fall for news events next week.

 

 

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