USDJPY Analysis – Multi-Time Frame & Trade Signal – April 4, 2012

If you have a questions about the analysis see the How to Use the Analysis post. If that does not answer your question, then please leave a question or comment at the end of the analysis.

USDJPY Analysis – April 4, 2012

Cory Mitchell, CMT

Recent Events: On Tuesday the pair extended down into a significant support area. In the context of overall uptrend this presents trade opportunities.

USDJPY Analysis – Long and Medium-Term

The trend remains down for the USDJPY over the long term. We can go back to the high in 2002 to see the massive downtrend the pair has been in. That downtrend is no danger at this point and remains in effect. Moves as high as 1.09 could still be considered corrections in this long-term downtrend.

Going back to 2007 we can see that the pair has broken above a medium-term trendline (green, downward sloping) indicating that we are likely in a large intermediate correction higher.

USDJPY Weekly with Trendlines, Proprietary Indicator and ATR.

USDJPY Analysis – Trading Term Outlook

After the long time in the former trading range, the pair could trend for a while.

The bullish bias remains intact unless the pair gets back to 80.50 and/or 79.90–the recent low. This is unlikely at the current time. A bulletin was posted last week  indicating that 81.25 is likely to be the low of the this correction and also that I added to my long position at 82.

Here is a partial excerpt (along with the chart published at the time – March 29) of that bulletin which explains why 81.25 is likely to be the low and I expect the pair to move higher before it moves below 80.50:

Zigzags often move in similar dimension across waves. Therefore this move down from high to low should roughly equal the decline from March 21 to March 23. This provides a target of 81.26 give or take a pip or two. Since this trend is strong it is possible the current wave down will only travel a portion of the original down wave. This provides us with the other entry point near 82.

82 is significant because it is what I view as the top of the prior corrective wave seen in late February to early March. 81.25 is the anticipated low if we keep dropping (which may still occur) based on the idea that corrective waves of this fashion will often tend toward equality. Not to be used on its own, but combined with other evidence there is a compelling case that the low of this correction will occur between 82 and 81.25.

A rise above this last week’s high of 83.40 confirms that the USDJPY is still moving higher. And from the current chart we can see the USDJPY entered the 82 to 81.25 area and has since rallied.

USDJPY Daily with Trendlines, Proprietary Indicator and ATR.

USDJPY Analysis – Trading Environment

Seasonality: Season patterns are on the side of the long for the time being. Mid-March to early April is generally bullish time for the USDJPY. May is typically a bearish month for the pair.

The pair has been in a strong trend since early February. Trend strategies are recommended. Buying on new highs is likely to be OK, given the strong rally, but not ideal. It is preferable to buy on pullbacks–buying as the pair begins to move higher after a decline.

Daily Average Movement (2-week): 100 pips. Keep this in mind if setting daily targets. Volatility has been escalating in 2012 confirming the transition from a low volatility range to a trend.

The chart below shows daily volatility by day of the week (5 week average).

This means that over 24 hours the pair, on average, moves that many pips. When short-term trading, this number is very relevant. For more on how to use correlations and volatility see the articles listed at the top of the Daily Forex Stats page.

Weekly Average Movement: Based a 10 week ATR the pair is moving 176 pips on average a week. This can be used a guide to determine how long it will take for stops or profit targets to be reached.

Noteworthy Correlations to Other Pairs: EURJPY has a +97.4 correlation on a daily basis, and +95.9 on hourly basis. No significant correlations on a weekly basis.

Keep these correlations in mind to avoid overexposure to underexposure. Correlated pairs also have potential hedging capabilities.

USDJPY – Trading Strategy at this Time

There is a current long trade on from prior analyses, and also the buy signal given in the March 29 bulletin:

Add anywhere between 82 and 81.30 if a move back lower occurs. This opportunity may or may not present itself again.

Assuming we break above 83.40 then use 80.50 as a stop. Using 81 is likely also OK, but given that we could move slightly higher and then correct back lower I prefer just to keep it at 80.50 or 79.90. Once the pair gets up into the 84 area then the stop can be moved up.

Target remains 84.85. There is also another target, which should be in the 85.30 to 85.50 area, this target and potential others will indicated at a later date if the price moves towards recent highs.

Ideal Hedging Candidates: Nothing ideal, but EUR/JPY and GBP/JPY can be used.

Additional Notes: no

Regards,

Cory Mitchell, CMT

This is not a recommendation to buy or sell. Trading forex involves substantial risk of loss. This should not be considered investment advice. Please see our Legal Disclaimer page to be aware of your risks.