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USD/JPY

USD/JPY

The USD/JPY has been shot out of a cannon since touching the 76.00 handle. As a new week starts, the market opens higher than Friday's close, tagging 81.57 before sliding sharply down toward 80.00. If the daily candle closes around here, we have what's called a piercing pattern, often assessed as a warning of reversal, or at least a correction. This may present the first significant correction during the current bull run.

If the market is to remain bullish, which is my preferred scenario, then we should be making a buy on a dip trade plan. Let's start with assessing possible 1) support 2) risk 3) reward.

1st Entry and initial R/R: The first possible support is the 79.45-79.50 area (previous resistance pivot and 38.2% retracement of the 76.01-81.57 swing. Support here can confirm a bullish continuation, but a break does not invalidate. In fact I think a deep correction to 61.8% retracement at 78.15 provide the dip is not in panic mode, can still be within the bullish outlook. A stop should really be under 78.00, let's say 77.65. From 79.50 down to 77.65 is a hefty risk of 185 pips. Initial target should be the 81.50-81.70 area, giving this a reward to risk of about 200 pips to 185 pips, basically 1:1. There is too much risk at 79.50.

2nd Entry and shifted R/R: If a second entry is planned at 78.30, the average entry can be 78.90. Now, the risk is 125 pips, and reward is 270, making reward to risk slightly better than 2:1.

2nd Target: While the current highs and the 81.70 (61.8% retracement seen in the weekly) creates the first target zone. A more aggressive outlook can be seen toward the 84.50-85.20 resistance pivot zone. This makes the possible reward from 78.90 500+ pips. At 500 pips, the reward to risk is 4:1.

USD/JPY

Fan Yang CMT is the Chief Technical Strategist, trader, educator and a of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.