Dollar-yen has been a frustrating pair to trade recently. It can’t seem to find any strong direction. Just when it looks like it’s going to rally or plunge through support, it heads in the other direction. In essence, we have been trading between 89 and 95 since the start of the New Year.
In the longer-term, we expect the pair to eventually trend lower but at the moment, the trend is clearly sideways. In a sideways market, sometimes there are opportunities to put on a low risk trade that takes advantage of a short-term trend. That’s exactly what we see right now in USD/JPY.
This pair sold off on Friday from 93 to 91 but it has rebounded and consolidated in quiet trading today. This is a classic fibonacci retracement. The high earlier of 92.07 is precisely in “The Box” which is the zone between the 50% and 61.8% retracement. We think the spot rate, at 91.64 presents an excellent value on the short side.
Stochasics are showing an overbought signal on the daily and hourly charts with both in the process of rolling over. From a risk management perspective, the trade also presents good value. A stop at 92.15 is a 50 pip risk while on the downside, there is no significant support until 90.54.