Last week we saw a Hammer candle forming but chose to hold off and wait for confirmation until it closed. We noted that if the candle closes with the Hammer still showing, this will be a bullish reversal signal pointing to USDJPY upside momentum. We therefore suggested a conditional strategy, saying that if confirmation comes we will go long USDJPY above 100.70, revising our profit target lower to aim just below 104.00. Our analysis proved correct. The candle we were looking at was confirmed a Hammer (see below). This prompted us to buy USDJPY, entering at 101.08 with a stop at 99.97 and targeting 103.97. Our target price was reached, yielding 289 pips in profit.
Upside momentum has extended above the medium term resistance level at 102.90 (shown below). This suggests USDJPY will continue moving up from here. However, present positioning does not yield good risk-reward parameters. Should the pair retrace back to 102.90, we will enter long upon seeing a bullish reversal candlestick.
USD/JPY Strategy
1. Long USDJPY if it retraces to 102.90 and a confirms a reversal.
2. Set stop-loss near 101.40 amid recent price congestion.
3. Set profit target just below 106.00, risking 150 pips to gain about 300.
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