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Prepare for a Stock Market Reversal; Yen Trading Levels Identified

By , Sr. Technical Strategist
26 July 2013 20:46 GMT

The USDJPY traded into the bottom of 3 week consolidation this week. Volatility is increasing but remains relatively low. Strength from the current level would present an opportunity to participate on the short side for a larger decline.

Pair

atr(5)%

atr(20)%

atr(5)pips

atr(20)pips

USDZAR

1.49

1.55

1442

1500

AUDUSD

1.28

1.42

118

131

NZDUSD

1.29

1.39

104

112

USDNOK

1.04

1.35

614

796

USDSEK

1.04

1.28

675

833

USDMXN

0.91

1.22

1147

1533

USDJPY

1.22

1.17

121

116

USDCHF

0.82

1.00

76

93

GBPUSD

0.71

0.89

110

137

EURUSD

0.65

0.84

87

111

USDCAD

0.55

0.69

57

71

The table displays ATR over 5 and 20 day periods in % and pips. One way to easily identify a market increasing in volatility is 5 day ATR > 20 day ATR. USDJPY is increasing in volatility.

USDJPY

4Hour

Prepare_for_a_Stock_Market_Reversal_Yen_Trading_Levels_Identified_body_usdjpy.png, Prepare for a Stock Market Reversal; Yen Trading Levels Identified

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Interested in automated trading with Mirror Trader?

FOREXAnalysis: The USDJPY traded into the bottom of 3 week consolidation this week. Volatility is increasing but remains relatively low. Strength from the current level would present an opportunity to participate on the short side for a larger decline. Thursday’s late day spike low is resistance along with Friday’s post Tokyo consolidation at 98.80/90. Also, watch the underside of the broken channel (in red) for resistance.

FOREX Trading Strategy: Looking for a high into 98.80/90. 97.50 and 96.40 are estimated supports with 95.40 as ultimately the strongest support and a final target. I went into more detail on why these levels are important in Friday’s DailyFX PLUS webinar.

GBPJPY

Daily

Prepare_for_a_Stock_Market_Reversal_Yen_Trading_Levels_Identified_body_gbpjpy.png, Prepare for a Stock Market Reversal; Yen Trading Levels Identified

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Are you new to FX or curious about your trading IQ?

FOREXAnalysis: *Additional GBPJPY charts. GBPJPY traded into big resistance this week from highs throughout April, May and June. Most don’t pay attention to close levels but closes of important market days (or weeks, months, hours, etc.) often serve as useful pivots…sometimes with an uncanny degree of accuracy. The 5/23 close at 154.03 marked the exact high for the latest advance (7/24 high was 154.03).

At one degree higher, the GBPJPY high in May was registered 3 pips above the breakdown week from August 2009 (weekly close in August 2009 at 156.76 and May 2013 high at 156.80).

FOREX Trading Strategy: I’ve been focusing on the GBPJPY trade in the Daily Technicals Yen section since Wednesday but for those not yet involved in the trade, strength above 152.00 would now present an opportunity to participate on the short side. 152.15 and 152.67 in particular form a zone of resistance. Shorts are valid below 154.10. Support to exit half of the trade is 149.90.

GBPUSD

Daily

Prepare_for_a_Stock_Market_Reversal_Yen_Trading_Levels_Identified_body_gbpusd.png, Prepare for a Stock Market Reversal; Yen Trading Levels Identified

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Interested in automated trading with Mirror Trader?

FOREXAnalysis: The GBPUSD Bigger picture GBPUSD bearish logic goes something like this; a 4 year triangle was broken to the downside in February. The market found bottom in March and rallied in 3 waves, eventually failing at the February breakdown level. The rally from July’s low has retraced 61.8% of the decline from the June high and 38.2% of the decline for the year. Don’t forget, the high for the year was made on the first trading day of the year (significant when one considers the distribution of highs and lows within a calendar year). Ultimately, the long term triangle break portends a return to 1.3500.

FOREX Trading Strategy: We still don’t have a tradeable high in order to trade with a reasonable stop but price is in the right area to top and event risk is heavy next week.

Nikkei 225 and S&P 500

Daily

Prepare_for_a_Stock_Market_Reversal_Yen_Trading_Levels_Identified_body_stocks.png, Prepare for a Stock Market Reversal; Yen Trading Levels Identified

Chart Prepared by Jamie Saettele, CMT

Interested in automated trading with Mirror Trader?

FOREXAnalysis: Continue to monitor to the S&P and Nikkei. Last week we focused on the fact that “the new S&P high is not confirmed by Nikkei action. Support becoming resistance and vice versa holds true for trendlines as well. Both markets have traded to the underside of former support lines. It is reasonable to expect resistance here. Market leaders are also flashing warning signs.” Don’t be surprised to see another push to satisfy the market’s obsession for round figures. 1700 is just around the corner but make no mistake, any such push would probably be on fumes and signal a top.

FOREX Trading Strategy: Looking to play a stock market reversal through USDMXN and USDZAR (see below).

USDMXN

Daily

Prepare_for_a_Stock_Market_Reversal_Yen_Trading_Levels_Identified_body_usdmxn.png, Prepare for a Stock Market Reversal; Yen Trading Levels Identified

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Interested in automated trading with Mirror Trader?

FOREXAnalysis: “5/22 is an important day. That is the Nikkei top and it was the S&P top. It was also a large volume day across many markets, including USDMXN. The close of that day is estimated support at 12.42.” If the S&P pushes to a final high, USDMXN might try for 12.42 but the rally from the 7/18 low is in 5 waves, which suggests that the market has turned.

FOREX Trading Strategy: Looking for a pullback to get long. 12.49 is estimated support.

USDZAR

Daily

Prepare_for_a_Stock_Market_Reversal_Yen_Trading_Levels_Identified_body_usdzar.png, Prepare for a Stock Market Reversal; Yen Trading Levels Identified

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Interested in automated trading with Mirror Trader?

FOREXAnalysis: USDZAR has pulled back slowly over the last 6 weeks to test a former upward sloping resistance line. A large range key reversal unfolded on Wednesday after price dipped just under the line. The market response is promising. The daily RSI dip below 40 is characteristic of a market attempting to bottom within a larger bull trend.

FOREX Trading Strategy: Quite possible that a low is in place. An intraday plot of the rally from the low shows a sharp advance with a potentially completed flat correction from the 7/24 high. Look for a pullback and for price to hold the low before making commitments.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

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Jamie is the author of Sentiment in the Forex Market.

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26 July 2013 20:46 GMT