USD/JPY has started to pullback once again after Japan’s Nikkei stock average dropped 1.6% on the final trading day of the year. With many banks closing for New Year’s Eve, thin trading conditions are expected to persist.
The USD/JPY 30-minute chart above displays the key failure to make a new high above the 120.81 level. The key breakdown below both the bullish trendline and the 50- and 100 period SMA opens the door for a potential slide towards 118.81, which is the 38.2% Fibonacci retracement of the 115.56 to 120.81 rally.
If downward pressure breaks below the 118 handle, a major slide could target a return to the 116.22 region, which is where the 50-day SMA is currently residing. If that level does not hold, major support will come from a potential bullish Gartley pattern at 114.13.
If USD/JPY bullishness returns without a deeper pullback, rallies toward the 120.50 region could be faded. Eventually, by the end of Q2, a rally towards 125.00 may be reached, but for the next couple of weeeks, range trading between 116 and 120 may occur.
The trade: Sell USD/JPY at 119.60 with a stop loss at 120.10 and a take profit at 118.10. The Risk/Reward Ratio is 1:3
Edward J. Moya