Yesterday (8/5) we saw strong US data help boost the USD. The USD/JPY rallied to 102.90 but failed to challenge the highs around 103. The pair retreated, and as we get started with the 8/6 US session, the usd-yen pair is about to complete an ABC correction, with C=A projection. The projection would be toward 102.18.
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101.80-102 Support Factors:
Note that as USD/JPY approaches 102, it will be approaching a very key support cluster. On the 4H chart, you can see that the 102 area has a rising trendline from mid-July. The 50% retracement level is at 102.08.
When you look at the daily chart, you can see that price is currently testing the 200-day SMA as support at the 102.25 area. The moving average cluster in the daily chart is around 102.
In the 4H chart, you can see that the 61.8% retracement level is at 101.85, and the 200-period SMA is at 101.80. On the daily chart, the 50-day SMA is around 101.90.
Finally you can see that price is currently also testing the broken triangle resistance as support.
A break below 101.80 would clear all these support factors, and would be a strong signal that price is back to focusing on the lows around 101.10, then the 100.75 2014-low.
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Reward to Risk Assessment:
We have established that a stop that stays clear of all the key support factors should be below 101.80, let’s say 101.70. To the upside, the first target for USD/JPY should be 103, with a slightly more aggressive one toward the 103.75-104 area.
This means, for a conservative target (103), the entry will have to be 102.10 to yield a 2:1 reward to risk ratio. (reward: 103-102.10 = 90; risk: 102.05-101.70 = 45). A target of 103.75 would yield 165:45, or 3.6:1 reward to risk. So you can see that if the entry is a little higher around 102.20, the conservative target at 103 yields a 80:55 or 1.45:1, while the 103.75 target yields 155:55 or 2.8:1 R:R.
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