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Beginner Traders' Corner−− USD/JPY Still in a Downtrend, but Positioning for a Break?

Basil Fayadh from eToro USA at 02/15/10


From a technical perspective, USD/JPY is in a downtrend on a 4-Hour Chart, but is within an uptrend on the shorter term.   The pair has made a retracement from its downtrend marked by the high on the chart to the low (93.75 on jan 7 2010, to 88.53 on Feb 4 2010) and made it all the way  back to the 38.2% Fibonacci level which also coincided with the downwards trendline on this move.  The pair has been unble to get above these levels and sees immediate resistance (R1) at 90.50, on to the 200 Hour MA (blue line) at around 90.75, a break through these levels could possibly yield to 91.14 (R2) and on to 91.75 (R3),  I am in the firm opinion that a break through all of these considerable resistance points will possibly yield to the previous high where the downtrend had started.  On the downside we are looking at immediate support on the short-term uptrend right around 89.75 and from there to the previous low at 88.53. 

Look to jobless claims later this week, as well as inflation numbers in the form of current Core CPI m/m  later this week to give firm added direction into the momentum of recent USD strength.  You can find a forex calendar here.

The Fibonacci sequence, named for its discoverer Leonardo Fibonacci, forms the basis for Elliott Wave theory used in trading financial markets. Out of Elliott Wave theory comes Fibonacci retracements and Fibonacci arcs discussed below. The Fibonacci sequence is 1,1,2,3,5,8,13,21,,34,55,89... to infinity. The sum of two consecutive numbers equals the next number. The ratio of any number to its next highest number approaches .618. The ratio of alternating numbers approaches .382. Also, 1 - .618 = .382. The midpoint of .382 and .618 is .50. This is why .382, .50, and .618 are used.

RetracementsIn technical analysis, Fibonacci retracements approximate support and resistance (and potential turning points) following a trend. Calculate the distance from the low to the high of the trend and calculate 38.2%, 50%, and 61.8% of the distance of the trend. Subtract those values from the top of the trend. Those are the potential reversal points. Charting packages perform the calculations for you - all you have to do is connect the low of the trend with the high of the trend using the Fibonacci retracement tool.

The views in this post are purely opinion and should not be misconstrued for trading advice.  Charts powered by FX Solutions Accucharts.

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