Traders Watching for USD/JPY Bottom

04/27/2011 5:00 am EST

Focus: FOREX

Technical patterns are suggesting that the yen is forming a bottom against the US dollar, and as such, it seems that buying at current levels would be dangerous and ill-advised.

The USD/JPY has entered a former congestion zone that should now serve as support. The zone, 8070-8200, is defined by the sideways trade that took place following the rally off of the panic low in mid-March.

We expect that this drop will result in formation of a wave ii low ahead of 7637 before a much larger advance in a third, or C, wave. Recent doji candle patterns on the daily chart suggest that a bottom is imminent.

chart
Click to Enlarge

Looking toward “the clouds” so long as it holds above the daily Ichimoku cloud, it will confirm our thoughts on a yen bottom:

chart
Click to Enlarge

Daily studies do, however, still show room for additional setbacks before the cloud can support, and as such, buying at current levels is not recommended until we see a bounce off of support on the first chart.

Use the cloud as a reference point and look to buy dips to the cloud top or on a break back above the 200-day simple moving average (SMA) by 83.30.

Ultimately, only a sustained break back below the cloud would negate our constructive outlook.

By the Staff at DailyFX.com

Related Articles on FOREX

Keyword Image
The Fabulous Shrinking Renminbi
09/27/2017 1:13 pm EST

As of August 2015, renminbi (RMB) in payments globally accounted for 2.8 percent of the total, the f...