03 May AUD JPY – The Weaker Yen Pair For Potential Swing Short
As you may know, CAD:JPY has been my favoured Yen trade on the short side recently based on good quality technical set-ups but in actual fact, the Austrailian Dollar has been the weaker currency against the Yen and therefore this might be where we should be focussing our attention.
It’s fair to say I’m somewhat late in spotting this one and it’s quite possible we are heading towards the latter stages of it’s current leg down, so we need to be cautious in finding entries that offer a satisfactory risk versus reward. The remaining downside could be as little as 100 pips from the current price level, but a retrace may still offer better entries so it’s worth keeping on the radar.
Starting with the smaller time frames.
Hourly AUD:JPY shows a nice trending pattern having broken through support at 82.87. A failed back test at this level confirmed it as resistance and probably would have offered a great short entry had I spotted it at the time. MACD is also trending down and has plenty of available downside room:
The 4 hourly chart doesn’t offer a great deal more information, but confirms price is well below all major MA’s and weakening MACD. Price is a little too far below the 200 MA for me to be fully comfortable with entering positions at current levels, but still it gives an idea of possible upside risk to be aware of when setting stop losses:
The Daily chart is much more interesting. Back in January price broke out of a long term triangle. It now looks as though price could be heading back down to retest that same triangle, but more importantly the 200 MA residing just above the triangle. The 200 MA is a very attractive initial downside target and is almost certainly going to be tested as potential support. This would offer around 100 – 120 pips from the current price level, but going back to the 200 MA on the 4 hourly time frame above, to be sure of covering potential upside risk, you’d need a stop loss in the region 200 points thus making the risk unfavourable from current levels unless you were willing to enter the trade and take the risk of running tighter stops. After all, probability definitely favours lower prices ahead but the uncertainty lies within the route price will take to get there!
The break of 82.50 support is also a positive sign for bears, but at this stage of the game that alone is not indicative of lower prices ahead as it could be an overshoot. A failed retest from underneath would be the safer option when basing trades around the 82.50 Support/Resistance level.
The Weekly chart essentially shows that price is in a long term ranging pattern, with the previous 2 rallies failing to breakout of the range and eventually retracing back to support in the 72.00 area, around 1000 pips from the current price level. It’s difficult to say if this will happen again, but I’m sure someone somewhere is trading for exactly that to happen.
There are a number of potentially supportive Moving Averages just below the current price level, but on this time frame there isn’t much historical evidence to suggest AUD:JPY respects them or reacts to them. Again, MACD has loads of downside room here.
In conclusion the odds definitely stack in favour of further downside to come, however, this is an established short to medium term trend and could retrace at any time, thus stop loss placement will play a very important role, as will the risk one is willing to take for the potential reward.
For me, Although a bit slow in spotting this, I’m interested in entering short, but will probably look for an intraday rally or overbought indicators on the smaller time frames before entering a position. If I decide to enter, I’ll post the details in the comments section beneath this post and in the Swing Trade log to the right of this post.