USDJPY → Huge Fall from 160.000 Heading for 148.000!?
Updated
USD/JPY raced to test 160.000 last week and as expected, had a massive sell-off that ended Friday just below the 152.000 breakout area. Should we still be long? Or is it time to get short?
How do we trade this? 🤔
The question in my last analysis was are we in for a hard sell-off? And should we buy these pullbacks? The conditions we see today change the perspective on buying the pullbacks. That wasn't just any sell-off, that was a hard rejection and reversal pattern.
The sell-off from 160.200 dropped nearly 600 pips in 8 hours. This was followed by a meandering pullback toward the previous candle close high of around 158.400, which ended in another massive drop to 153.100. We then had a final bear push just below the breakout level of 152.000.
We can read this a couple of ways, the first is that this is our re-test of the breakout area as I expected two analyses ago where I expected a confirmation of the 152.000 area as support before making it to 160.000:
However, we never tested 152.000, we went to 160.000 in rapid fashion first. Such volatility is a sign of a reversal or at least, a push below the breakout level. We have a rough double-top from the initial sell-off, then its follow-up, followed by a third push to the breakout point.
We're three pushes up after the 152.000 breakout, a massive sell signal and follow-through at the 1990 Key Resistance Level of 160.400, and we've closed below the 4HR 200EMA. A similar pattern played out in October 2022 with some slight differences as seen here:
October 2022 Pattern:
This was the first time we touched 152.000 and had a massive sell-off, followed by the same meandering pullback to the 4HR 30EMA, which acted as a rough head-and-shoulders reversal pattern. However, the close was below the 4HR 30EMA on the pullback and above the 200EMA on the first bounce. This time, the pullback went above the 4HR 30EMA to touch the channel top and then closed below the 4HR 200EMA.
That last point is a key difference. Both instances are clear reversal signals with follow-through, but the 160.000 rejection was much stronger with a close below the 4HR 200EMA. If the price comes back up to test that 200EMA and gets rejected, that's our signal to short. I would then be targeting levels below 152.000, where the price previously met resistance, which will now likely act as support. Those levels are 150.800 and 148.800.
It's very possible we fall much further. But I recommend waiting for that rejection from the 4HR 200EMA and then short 1:2 Risk/Reward to those two key levels. It would be reasonable to swing 25%-50% of your position to lower levels if the price action warrants it. If the price does not get rejected at the 4HR 200EMA, we need to wait and see if the bullish pressure resumes and adjust our bias accordingly. We are still in the channel, the confirmed break below is what we need to justify getting short.
💡 Trade Idea 💡
Short Entry: 153.550
🟥 Stop Loss: 155.800
✅ Take Profit: 149.050
⚖️ Risk/Reward Ratio: 1:2
🔑 Key Takeaways 🔑
1. Three pushes up after the 152.000 breakout to the key level of 160.400
2. Strong rejection and follow-through back down to the 152.000 level
3. This strong volatility at the end of a trend is a sign of a reversal
4. Enter a 1:2 Risk/Reward trade down to 149.050. Potentially swing some of your position lower.
5. RSI at 35.00 and below the Moving Average, supports pullback before fall.
💰 Trading Tip 💰
The longer a trend continues after 3 legs, the probability of that trend continuing lessens. Because of this decreased probability, we ought to reduce our risk when entering trades and start looking for reversals.
⚠️ Risk Warning! ⚠️
Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
Like 👍 and Follow to learn more about:
1. Reading Price Action
2. Chart Analysis
3. Trade Management
4. Trading Psychology
How do we trade this? 🤔
The question in my last analysis was are we in for a hard sell-off? And should we buy these pullbacks? The conditions we see today change the perspective on buying the pullbacks. That wasn't just any sell-off, that was a hard rejection and reversal pattern.
The sell-off from 160.200 dropped nearly 600 pips in 8 hours. This was followed by a meandering pullback toward the previous candle close high of around 158.400, which ended in another massive drop to 153.100. We then had a final bear push just below the breakout level of 152.000.
We can read this a couple of ways, the first is that this is our re-test of the breakout area as I expected two analyses ago where I expected a confirmation of the 152.000 area as support before making it to 160.000:
However, we never tested 152.000, we went to 160.000 in rapid fashion first. Such volatility is a sign of a reversal or at least, a push below the breakout level. We have a rough double-top from the initial sell-off, then its follow-up, followed by a third push to the breakout point.
We're three pushes up after the 152.000 breakout, a massive sell signal and follow-through at the 1990 Key Resistance Level of 160.400, and we've closed below the 4HR 200EMA. A similar pattern played out in October 2022 with some slight differences as seen here:
October 2022 Pattern:
This was the first time we touched 152.000 and had a massive sell-off, followed by the same meandering pullback to the 4HR 30EMA, which acted as a rough head-and-shoulders reversal pattern. However, the close was below the 4HR 30EMA on the pullback and above the 200EMA on the first bounce. This time, the pullback went above the 4HR 30EMA to touch the channel top and then closed below the 4HR 200EMA.
That last point is a key difference. Both instances are clear reversal signals with follow-through, but the 160.000 rejection was much stronger with a close below the 4HR 200EMA. If the price comes back up to test that 200EMA and gets rejected, that's our signal to short. I would then be targeting levels below 152.000, where the price previously met resistance, which will now likely act as support. Those levels are 150.800 and 148.800.
It's very possible we fall much further. But I recommend waiting for that rejection from the 4HR 200EMA and then short 1:2 Risk/Reward to those two key levels. It would be reasonable to swing 25%-50% of your position to lower levels if the price action warrants it. If the price does not get rejected at the 4HR 200EMA, we need to wait and see if the bullish pressure resumes and adjust our bias accordingly. We are still in the channel, the confirmed break below is what we need to justify getting short.
💡 Trade Idea 💡
Short Entry: 153.550
🟥 Stop Loss: 155.800
✅ Take Profit: 149.050
⚖️ Risk/Reward Ratio: 1:2
🔑 Key Takeaways 🔑
1. Three pushes up after the 152.000 breakout to the key level of 160.400
2. Strong rejection and follow-through back down to the 152.000 level
3. This strong volatility at the end of a trend is a sign of a reversal
4. Enter a 1:2 Risk/Reward trade down to 149.050. Potentially swing some of your position lower.
5. RSI at 35.00 and below the Moving Average, supports pullback before fall.
💰 Trading Tip 💰
The longer a trend continues after 3 legs, the probability of that trend continuing lessens. Because of this decreased probability, we ought to reduce our risk when entering trades and start looking for reversals.
⚠️ Risk Warning! ⚠️
Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
Like 👍 and Follow to learn more about:
1. Reading Price Action
2. Chart Analysis
3. Trade Management
4. Trading Psychology
Note
USDJPY starts off bullish this week leading into the 154.000 price area. We've passed the 4HR 200EMA as expected, we're now at a crucial moment where the price meets the 4HR 30EMA. If the price breaks this area with a strong candle close on or near it's high, it's time to get long. If the price rejects here, I would expect it to fall to the bottom of the second major bear candle at 153.000 but more likely, re-test 152.000 or lower.
For now, I would trade the smaller timeframes like the 5-minute chart until we have a clear answer on the higher timeframes. At the moment, the price is very bullish so I would hold off on any short positions on any timeframes until we get the signals necessary.
More updates to come as the key points unfold!
Note
We have a nice close above the 4HR 30EMA followed by a test of the 30EMA as support! We *just* closed the last 4HR candle above the confirmation candle; our bias should now be long especially if we get an 1HR candle close above this channel top. Any stop loss on this timeframe should be placed below the 200EMA or the massive bear candle wick to the left assuming this would act as an inverse head and shoulders pattern.
-Joe Dean
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