Scalping the Waves- USDJPY Back in Play

Volatility has returned to the formerly moribund yen market. Volatility breeds clarity, so it’s time to trade the yen again. While the 5.3% advance in the USDJPY this month has been an impressive run, intra-day technical suggest the pair is likely to pare a portion of this advance with our short-term bias weighted to the downside.

Daily Chart

A 5 wave advance from the 2/1 low is most likely complete in the USDJPY at Sunday evening’s high (81.66). Expect weakness on balance over the next 1 to 2 weeks in order to complete a corrective 3 wave decline from 81.66. Expect support at 79.35/50 (2/20 low and 38.2% retracement of the 5 wave rally). A deeper decline could reach 78.20/30 (61.8% retracement and breakout level). We’ll have a better idea regarding formation of the next low in real time but 79.35/50 and 78.20/30 are levels to keep in mind. Near term, I favor shorting strength into 80.75/81.00 for a drop into the mentioned levels.

Scalp Chart

The USDJPY has continued to trade within the confines of an ascending channel formation dating back to February 3rd with interim support seen at the convergence of channel support and the 23.6% Fibonacci retracement taken form the February advance at 80.30. A break here initiates the scalp with subsequent support targets held at 79.85, the 38.2% retracement at 79.50, 79.16, and the 50% retracement at 78.85. A break below this level risks further losses for the greenback with extended targets seen at 78.50 and the 61.8% retracement at 78.20.

Interim soft resistance is eyed at 80.75 backed by 81.10 and the 2012 highs made at the Sunday open at 81.66. A breach above this key level negates our short-term bias with such a scenario eyeing topside targets at the 82-figure and 82.50.A 2-hour average true range of 30.65 yields profit targets of 25-27 pips depending on entry and may talk longer attain. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break below 80.30 or a rebound off 80.75 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed our topside limit at 81.66 eyeing topside targets.

Key Thresholds

---Written by Jamie Saettele, CMT, Senior Technical Strategist and Michael Boutros, Currency Strategist with DailyFX.com

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Jamie is the author of Sentiment in the Forex Market.