Today’s Trading Edge: USD/JPY: Trades under pressure as Nikkei drops 1.6% on final trading day of the year

WWM USDJPY DEC 30 2014

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

Technical Strategist

Edward J. Moya is the Chief Market Strategist for edmoya.com, an educational website for foreign exchange and commodity traders. He has over 15 years of investment industry experience in forex, stocks, options and futures. At edmoya.com, Mr. Moya writes daily currency and commodity analysis and has authored numerous articles on trading using both technical and fundamental analysis for major financial publications. He is a contributor of technical and fundamental analysis in currencies and commodities to SFO, Market News International, and Forex Factory.

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