USDJPY Taking a Breather

USDJPY Chart
.29 Mar 2024
author avatar image Andreas Thalassinos

Table of Contents

Briefing on USDJPY

  • Financial instrument: USDJPY
  • Timeframe: Daily
  • Session: Tokyo
  • Trend: Up
  • Trend Confirmation: Price above the Alligator
  • Momentum: Awesome Oscillator above zero
  • Support Levels: 150.844 (PP), 149.593( S1), 148.804 (Previous Peak), 147.493 (38.2%)
  • Resistance Levels: 152.547 (R1), 153.542 (161.8%), 155.501 (R2), 157.907 (261.8%)
  • Trading Strategy: Buy on Up Fractals

Introduction

The Japanese Yen versus the US Dollar has followed an upward trajectory since March 11, when prices exceeded the Up Fractal of 145.979 and closed above the Alligator. This breakout fractal above the Alligator signaled the beginning of an upward trajectory for the USDJPY. Employing technical analysis, particularly the Alligator indicator, we aim to discern potential entry points, protective stop loss levels, and four profit-taking levels for traders considering positions in this currency pair.

Alligator Indicator Overview


The Alligator indicator, created by Bill Williams, comprises three smoothed moving averages with distinct periods:

  • Jaw (blue line): 13-period SMA shifted 8 bars into the future.
  • Teeth (red line): 8-period SMA shifted 5 bars into the future.
  • Lips (green line): 5-period SMA shifted 3 bars into the future.

Technical Analysis

USDJPY price chart showing a rally above the Alligator indicator along with potential resistance and support levels.

Trend Identification

  • Currently, the price is above the Lips; the Lips are above the Teeth, and the Teeth are above the Jaw. All three lines are wide open, pointing upwards, indicating a continuation of the upward direction.
  • The Alligator indicator assists in identifying trends:
    • Up Trend: Lips above Teeth, Teeth above Jaw.
    • Down Trend: Lips below Teeth, Teeth below Jaw.

Potential Entry Points

Sell Entry: When the Lips cross below the Teeth, and the Teeth cross below the Jaw, it suggests a potential downtrend. Consider entering a sell position upon a confirmed break below a significant support level.

  • Buy Entry: Conversely, if the Lips cross above the Teeth and the Teeth cross above the Jaw, indicating an uptrend, consider entering a buy position upon a confirmed break above a notable resistance level.
  • Buy at 151.971: A potential Buy entry is seen above the Up Fractal at 151.971.

Protective Stop Loss

Mitigating risk is crucial. Set a protective stop loss to limit potential losses if the market moves against the trade.

  • Sell Trade: Place the stop loss slightly above the Lips, Teeth, or Jaw.
  • Buy Trade: Place the stop loss slightly below the Lips, Teeth, or Jaw.
  • 149.816: The initial stop loss for a potential Buy trade is set below the Teeth at 149.816.

Potential Profit Levels

Establishing profit targets is essential for effective risk management:

  • 152.547: The first profit target is set at 152.547, where significant resistance is expected. The value aligns with the R1 weekly resistance, applying the standard Pivot Points methodology.
  • 153.542: The second target could be set at the 161.8 percent Fibonacci extension of the most recent swing.
  • 155.501: The third target stands at the R3 resistance, using the weekly Pivot Points calculation.
  • 157.907: It corresponds to the 261.8 percent Fibonacci extension of the most recent swing.

Economic Events

The Bureau of Economic Analysis has released its “third” estimate for the fourth quarter of 2023, which reports an increase in real gross domestic product (GDP) at an annual rate of 3.4 percent. This figure represents a decrease from the third quarter’s growth of 4.9 percent. The results suggest a trend of steady economic expansion, albeit at a slower rate in the last quarter.

In February 2024, pending home sales experienced a growth of 1.6%. Year-over-year decreases were observed in all four regions of the United States. The Pending Home Sales Index (PHS) is a significant indicator of the housing market and measures the activity of housing contracts. This index is based on contracts signed for the sale of existing single-family homes, condos, and co-ops. As homes go under contract a month or two before they are sold, the Pending Home Sales Index generally precedes Existing-Home Sales by a month or two.

The consumer sentiment index recorded a slight uptick of less than three points in March as compared to February. Notably, consumers expressed confidence in the downward trajectory of inflation. Assessments and expectations of personal finances showed a modest improvement from the previous month as the perceived adverse impact of high prices and expenses on living standards has eased. Overall, the sentiment has remained largely unchanged throughout the first quarter of 2024.
This stability reflects a perception among consumers that the economy has been holding steady in its current state.

Conclusion

In summary, the USDJPY pair is currently on an upward trend above the Alligator. All three lines, namely Lips, Teeth, and Jaw, are wide open and pointing upwards. This indicates that the upward trend is expected to continue. Traders can use the Alligator indicator in technical analysis to identify trends, potential entry points, and profit-taking levels in the USDJPY currency pair. However, it’s important to complement technical analysis with fundamental factors and market sentiment for a well-informed decision-making process.

author avatar image
Andreas Thalassinos

Experienced educator with a demonstrated history of working in the financial services industry. Skilled in Technical Analysis, Market Risk, Asset Management, Stock Market, and Trading Systems. Strong professional with a MSTA by Society of Technical Analysts (UK), CFTe and MFTA focused in Master of Financial Technical Analysis from International Federation of Technical Analysts (USA).