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What’s inside:

  • USDJPY path of least resistance remains lower
  • Potential descending wedge coming into play
  • Aiming to exit ahead of key long-term support at 10500

This play isn’t a range-trade per se, but rather an opportunity to fade at an upper boundary in line with the strong trend lower. USDJPY has been one weak kitten as of late, and while it currently sits not far above a pretty massive support level at 10500, there is some room left for the short-term trader to catch a nice move in the next few days.

Price movement since June 5 is working itself way towards developing a descending wedge with lower highs and a flat bottom marking the pattern. The ideal set-up will require a bit more wiggle before it can be considered ripe for entry, but if it is to happen it should do so early next week at the latest.

What is needed to pique interest from a fade-trade standpoint: USDJPY moves back lower towards 10625, then bounces again to the top-side trend-line. A failure to break above the trend-line will create another lower high, and as a consequence further the wedge towards its apex where it should eventually resolve itself to the down-side.

USDJPY: Bearish Price Sequence Developing on the 4hr

Levels to Watch: (Note: Keep in mind, the prior structure outlined needs to develop, this is a scenario in the event those developments do come to pass. Trading is a lot about having scenarios and when the market moves in line with your plans, you can act accordingly.)

Entry: Top-side of wedge (moving entry with slope of line, but ~10690s at this time. Confirmation of pattern takes hold on 4-hr closing bar below 10625.

Stop: 10730, which is above the 6/9 lower high

Exit: 10555/10500 (heading for the exits ahead of 10500 is recommended given its importance.)

Looking for longer-term forecasts? Check out what our team of analysts are saying about the rest of 2016 regarding FX, commodity, and equity markets.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX, and/or email him at probinson@fxcm