Forex Trading Alert: USD/JPY - Declines Are Gaining Steam

By: Nadia Simmons & Przemyslaw Radomski | Fri, Apr 8, 2016
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Forex Trading Alert originally published on Apr 7, 2016, 11:16 AM


 

Earlier today, the yen moved sharply higher against the greenback on safe-haven buying and Bank of Japan Governor Haruhiko Kuroda comments (Kuroda said that easy monetary policies work and Japan is not headed for a recession). As a result, USD/JPY dropped under 109. How low could the pair go in the coming days?

In our opinion, the following forex trading positions are justified - summary:

EUR/USD: short (stop-loss order at 1.1512; initial downside target at 1.0572)
GBP/USD: none
USD/JPY: none
USD/CAD: none
USD/CHF: none
AUD/USD: none


EUR/USD

EUR/USD Weekly Chart
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EUR/USD Daily Chart
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On the above charts, we see that although EUR/USD climbed above previous highs earlier today, this improvement was very temporary and the pair reversed quickly, slipping under the Feb high. Taking this fact into account, and combining it with the current position of the indicators, we believe that what we wrote yesterday is up-to-date also today:

(...) Although this is a negative signal (an invalidation of the breakout), we think that it would be more reliable if we see a daily closure below the orange area. Finishing today's commentary on this currency pair, it is worth noting that all indicators generated sell signals ,which suggests that further deterioration is just around the corner. Nevertheless, such price action will be more likely if the exchange rate drops under the blue support line based on the previous lows and the lower border of the blue consolidation. In this case, the pair will likely accelerate declines and drop to around 1.1200, where the 38.2% Fibonacci retracement (based on the recent upward move) is.

Yesterday, we received an interesting question from one of our readers and we decided to take a closer look at the chart of EUR/USD from different perspective.

EUR/USD Daily Chart 2
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On the above chart, we checked several time measuring techniques to try to estimate where the next (more important) bottom in EUR/USD could be. As the first method we checked direct time cycles based on Fibonacci ratios (marked with green). In this case, we measured the length of the upward move between Dec 3 and today (126 days) and we multiplied the result by 0.382, which gave us 38 days. If we add these days to today's date, we'll receive the date May 15, which suggests that in mid-May the probability of reversal would increase. The next date, which could bring the reversal, would be around May 27 (126 days * 0,500). The next method is based on low-to-low cycles (marked with blue). As you see on the chart, we measured the number of days between the Mar 16 and Dec 3 lows and multiplied the result by 1.618. Thanks to this method we received the date May 14, which is next to our previous result. Additionally, if we add 65 days (the difference between the Jan 5 and Mar 10 lows) to the Mar 10 low, we'll also receive May 14 (low-to-low). On the above chart, we also marked cyclical turning points (with grey), which indicate another reversal around May 25. Connecting the dots, we could see further deterioration in EUR/USD to mid- or even late-May. Nevertheless, please keep in mind that the above dates are only approximate and we'll focus mainly on the technical picture of this currency pair.

Very short-term outlook: bearish
Short-term outlook: bearish
MT outlook: mixed with bearish bias
LT outlook: mixed

Trading position (short-term; our opinion): Short positions (with a stop-loss order at 1.1512 and the initial downside target at 1.0572) are justified from the risk/reward perspective.


GBP/USD

GBP/USD Weekly Chart
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EUR/USD Daily Chart
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Looking at the above charts, we see that sell signals generated by the indicators encouraged currency bears to act, which resulted in another decline under the green support dashed line based on the previous lows. This negative signal triggered further deterioration and a drop to the lower border of the brown declining trend channel. In this way, GBP/USD tested the strength of the barrier of 1.4000, which resulted in a rebound yesterday. Despite this move, the exchange rate reversed earlier today, which suggests that we'll see another test of the green support zone (created by the 76.4% and 78.6% Fibonacci retracements the barrier of 1.4000 and the lower line of the trend channel) in the coming day(s). Nevertheless, we should keep in mind that the CCI and Stochastic Oscillator are oversold and very close to generating buy signals, which in combination with this solid support area will likely encourage currency bulls to act and we'll see a reversal in near future.

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment.


USD/JPY

USD/JPY Weekly Chart
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USD/JPY Daily Chart
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On Monday, we wrote the following:

(...) it seems to us that the exchange rate will re-test the strength of the green support zone in the coming week.

On Tuesday, we added:

(...) With today's downswing, the pair not reached our next downside target, but also declined below it. This is a negative signal which suggests further deterioration and a drop to around 109.81, where the 127.2% Fibonacci extension is. Are there any factors that could encourage currency bulls to act?

(...) USD/JPY dropped to the 61.8% Fibonacci retracement, which could trigger a rebound (...). However, if this support area is broken, the exchange rate could extend declines even to around 108.14, where the 70.7% Fibonacci retracement is.

From today's point of view, we see that the situation developed in line with the above scenario and USD/JPY declined sharply, approaching our next downside target (the 70.7% Fibonacci retracement). What's next? The current position of the daily and weekly indicators suggests that the space for declines may be limited. However, when we take into account breakdown under the lower border of the blue declining trend channel (marked on the weekly chart), it seems that the exchange rate could drop to the green support zone (created by the 76.4% and 78.6% Fibonacci retracements around 106.05-106.62) or even to 105.25, where the size of the downward move will correspond to the height of the trend channel.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment.

Thank you.

 


 

Nadia Simmons

Author: Nadia Simmons

Nadia Simmons
Sunshine Profits.com
Forex & Oil Trading Strategist
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Nadia Simmons

Nadia is a private investor and trader, dealing in currencies, commodities (mainly crude oil), and stocks. Using her background in technical analysis, she spends countless hours identifying market trends, major support and resistance zones, breakouts and failures. In her writing, she presents complex ideas with clarity that enables you to easily understand market changes, and profit on them. Nadia is the person behind Sunshine Profits' 3 premium trading services: Forex Trading Alerts, Oil Trading Alerts Alerts, and Oil Investment Updates.

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons's reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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