USD/JPY Technicals: Rally In Days, Weeks Ahead?
A USD/JPY rally is a distinct possibility in the days, and potentially weeks, to come as prices are currently testing critical/major support near 90.0. Looking back to the end of 2008-beginning of 2009 when rates double-bottomed out near 87.0 we see an extraordinary amount of convergence based the following Fibonacci support...
78.6% of XZ
141.4% of YZ
127.2% of BC
Further bullish confirmation comes in the recently completed AB=CD pattern starting with the June 2009 peak of 98.88 (point A). Although there is an above average amount of converging support near 90.0, this doesn't necessarily mean prices WILL in fact rally. No one knows this with certainty, of course. However, what this does mean is that we have a slight edge to the upside, but more importantly, we can more precisely quantify risk/reward which is of utmost importance.
Momentum is an important concept to understand in terms of support and resistance. One method to help determine the strength of a particular level of support or resistance is to look for this type of convergence. In other words, the more levels within a narrow range, the stronger the level....like stacking layers of plywood. A stronger level of support, for example, is more likely to provide a subsequent bounce; however, if falling prices break through that level then we can assume the downward momentum is even stronger in which case a bearish continuation move to the next level of support is likely. In the end the market is always right, but understanding this simple concept is how risk/reward can be identified in advance since it helps us frame up not just our entry, but exits as well. The ability to do so is critical to long term success regardless of the methods used.
That said, should the USD/JPY break below the 90.0 barrier we would expect a potentially strong bearish continuation down to the next level(s) of converging support near 88.84-88.66 (161.8% of YZ-88%of XZ), and perhaps as low as 87.99 (161.8% of BC). These levels may end up providing profit targets to the downside, or even frame the entry/stop of a bullish entry (for example, buying between 88.84-88.66 and placing stops below 87.99).
At the moment, signs point to at least a medium-term rally over the next few days in which case we can look to the retracements of the most recent downtrend (CD) for bullish profit targets while placing stops just below the 90.0 barrier. Initial profit targets are typically set just below 38.2% resistance (currently 93.05) followed by the 61.8% (near 93.95). More aggressive traders might look to enter based off this information alone, however, we will exercise a bit of patience and look to enter off a shorter-term bullish geometric pattern (15m-1hr charts, for example). In other words, we know where we’re getting out, we’re just looking for a higher probability entry to further tips the scales of probability in our favor. Either way, the next few days should produce some explosive price action.
Simple's Green Room-Forex trading
