USDJPY—potential short

Monday I wrote that I bought this pair for 90.25 based on what looked like a pennant on the daily chart. The pair continued down to a low of .8918 and I was stopped out on the way down (-70 pips reported on Tuesday). This biased me against the pair. I wanted to short but I couldn’t find a clear signal (based on the characteristics I look for before entering a trade). In all the ensuing market action, I put the pair on the back burner. This morning when analyzing yen crosses, I analyzed it again.

After bottoming at 89.18, USDJPY climbed, reaching a high of 90.55 yesterday before falling back a bit. Still no clear signals for me to enter but there are some interesting things going on in the pair.

A look at the weekly chart shows what could become an inverted head and shoulder (H&S) pattern. This is unconfirmed until the pair crosses the neckline (93.79, too far away for most short-term traders to worry about). On the three-hour chart, one could also make out a potential H&S and the neckline is much closer at 90.55. The problem with this is that the downtrend line of my pennant is coming in at 90.75. There is also polarity coming in at 90.71 (from the daily chart). Finally, 90.81 is the .618 retracement from the January 21 high of 91.87. The three of these together, in addition to the pair being in an overall downtrend and the fact that the current moves look corrective to me, should make for some significant resistance so I may look for another short as it approaches that price. Tight stops would be critical both because of the potential for breaking upward from the pennant on the daily chart and the potential inverted H&S on the weekly chart. Should it break above that resistance, I’d expect a climb back to the earlier highs of 91.87.

Here is the three-hour chart:




Here is the weekly chart with the potential H&S marked:



© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.