1500 Pip Breakout Potential on USDJPY

Not so long ago we wrote about how choppy the month of August usually is, and this year does not seem to be an exception to the rule. Today, however, an interesting breakout scenario has occurred on the USDJPY that certainly attracts our attention.

A similar breakout has already happened on the USDJPY at the end of July (read here), but at that time we had serious doubts whether the breakout could be trusted. And that mistrust in the breakout turned out to be spot on, because the USDJPY slipped back into a consolidation. Could it be different this time around?

20- 8- 2014 uj

USDJPY BREAKOUT – PART 2

No – it’s not a part 2 of a movie :) But it could be a legitimate breakout attempt. The USDJPY has posted almost an entire daily candle (Tuesday) above the resistance line and Wednesday’s candle is going full steam higher too.

Strong daily candles however are not necessarily enough. The start of the consolidation zone dates back all the way to end of January 2014, which is almost 7 months. Obviously when price gets close to the top of the consolidation zone there is a high risk of another rejection (such as the breakout failure recently at the end of July).

20- 8- 2014 uj 2

But this time around the breakout could be different. Here are additional reasons why:

  1. Usually when price makes a 2nd breakout attempt, the chances of a false breakout are lower
  2. USD strength is also occurring against the Euro and Pound
  3. The weekly chart had strong upside momentum in the last 2 years, and the past 2 triangles on the weekly had big breakouts as well
  4. Currently a weekly breakout candle could be appearing

20- 8- 2014 uj 3

CONFIRMATION STILL NEEDED

The main 2 elements that could hinder a breakout are:

  1. The monthly resistance
  2. FOMC event

Obviously the impact of the FOMC meeting minutes (released Wednesday) on the USDJPY price action will need to be closely reviewed. At times the FOMC event can seriously influence price so the strength and chances of a successful breakout will depend on the price action after the event.

Also price stopped at a big monthly resistance line (red). Whether price has enough steam to break through it remains to be seen. This is a classical bounce or break spot: decision time.

20- 8- 2014 UJ 4

HOW TO TRADE IT

There are several ways for a trader to approach the USDJPY breakout without getting caught in false break out.

The conservative approach is to wait for this week’s weekly candle to close. This will reveal whether:

  1. the breakout has enough muscle to break above resistance (not so likely as price is quite far from trend line) OR
  2. a weekly close is near the weekly high (not more than 20-30% wick)

In both cases there is a good chance of price breaking out to higher levels.

The more aggressive approach is to wait for price to hit the -27.2% target, wait for a retracement and try to position yourself in a long for the potential bounce and monthly breakout.

20- 8- 2014 uj 5

If the bigger monthly breakout does indeed occur, then a big breakout target could be expected all the way up towards the -27.2% and -61.8% Fibonacci targets at 111 and 120.

20- 8- 2014 uj 6

Are you going to use the conservative or aggressive approach when trading the USDJPY? Let us know down below in the comment section!

Happy Trading!

  

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • Chris

    Agree with you. Price needs to get above 104 otherwise a pullback to 103 is better.

  • lechiffre

    Although it looks like confirmed break, I would rather wait for a retrace back to 103 where I will sit on the bid.