Two days ago we discussed the USDJPY. At the time the pair was trading at 111.52 and the Fed rate decision was less than 24 hours away.
With an increase in volatility just around the corner, I opted for the sideline. I figured the U.S. dollar stood a good chance of gaining given the recent momentum, but I didn’t want to chance it.
The idea was to watch for a daily close (5 pm EST) above 111.90 resistance or back below 110.90 support. By the time Wednesday’s session closed, the USDJPY had made its decision.
The 112.17 close put the pair 27 pips above our key level. However, something had also occurred that left me waiting once more. Two things, in fact.
We often talk about retracements to new support or resistance. Whenever a market breaks through a key level, I like to wait for a retest of that area as new support or resistance. In the case of the USDJPY, it would be a retest of 111.90 as new support.
These pullbacks help to “reset” the momentum. It’s a cycle whereby some market participants book profits and others step up with new capital to buy the dip or sell the rip.
Proper timing requires patience. It’s the reason this group of traders is often referred to as smart money.
That’s a bit of a misnomer in my opinion. While it may be true that these traders have more experience than many, most aren’t overly intelligent.
What they do possess is patience and lots of it.
I bring this up because I received several questions yesterday about whether or not I was buying the USDJPY. Questions like this usually stem from a fear of missing out or FOMO as some like to call it.
Will I buy? Maybe, but not at current levels (112.22).
First off, we haven’t had a retest of 111.90 as new support. Second, the 10 and 20 EMAs are lagging below today’s price by 160 pips. That leads me to believe that a pullback or at least some sideways consolidation is likely over the coming sessions.
Even if we do get a retest, I won’t act right away. Instead, I’ll sit back and watch to see how USDJPY bulls handle themselves in the 111.90 region. If bullish price action develops and the 10 and 20 EMA tell me that the price has reset, then I’ll consider an entry.
If I miss the opportunity to get long, so be it. There will always be more opportunities tomorrow. I would always rather miss an entry than get stuck on the wrong side of the market.
The next key resistance comes in at 113.15 followed by the May and July highs at 114.35. Alternatively, a daily close back below the 111.90 handle would negate the bullish outlook and re-expose the 110.90 area.
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