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I’m going to begin the day today on the US Dollar versus the Japanese Yen [USDJPY]. Starting on the Daily Chart, we could see that this currency pair previously was in an uptrend. We start on the left-hand side of the chart, back in October of 2013. We saw the rise from down here into the mid-0.9600s, all the way back up here into the 105.30-level at the top of the chart. In most recent weeks, we’ve seen a little bit of a retracement of that previous uptrend.
We fell from the 105.30s all the way down here into the 101.0-level. Down here into this blue-shaded area, if you take Fibonacci from the lowest low – bottom left-hand side of the chart – to the current high. Lowest low to current high with Fibonacci puts the 50% retracement level right here into that blue-shaded area, right around the 101-level. And we could see that’s where the market came to a stop on the way down.
Now, over the past several weeks, we have seen basically a comfort zone for the currency pair, where the market has found support and resistance within an area of congestion, between two familiar support and resistance levels. First off, the yellow-shaded area. If we go back in time and study this yellow-shaded area between the 102 and 101.68-level, follow it back in time; we could see the past three days have found support there. But if we go back a little bit further, a couple of weeks ago we see multiple supports into that yellow-shaded area and even further back we could see, on the left-hand side of the chart, support into that yellow-shaded area.
And I’ve highlighted both of those zones in orange, so we can really see them easily, where we found support into that yellow-shaded area. And it’s again, familiar and a comfortable area of congestion with support here just on top of the 102-level. Now, resistance within that same area is the green-shaded area. That’s 102.68 up to 102.98. We’ll call it 103.00. We could see the green-shaded area holding as resistance just over the past three days, but we go back here a couple of weeks ago and we can see resistance into this green zone. And we can even go back here on the left-hand side and see much resistance and support within that green-shaded area.
So, we’re in a familiar area of congestion. And as long as we hold between there, like we did back here a couple of weeks ago and like we did back into the end of November, early part of December, we can find support and resistance in there, and it provides us trading opportunities to trade within this area of congestion, within this range, between 102 and 103. And eventually we’ll look for a breakout of this area. Now, of course, the direction of the breakout will be of course something that we’ll have to watch out for. Will it break out in the previous direction of the uptrend and break the green zone and start going back up, or will it turn back down, break underneath the yellow-shaded area, and continue the downward trend that we’ve seen here?
And we don’t know that for sure, but what we’ll know is that once it breaks out of one of these areas – yellow or green zone – we’ll likely see some continuation in that direction. So let’s go ahead and put a couple of arrows here to represent this area of resistance. The green zone above it, we’ll likely look for the continuation higher. Underneath it, we’ll look for continued resistance as we’ve seen for the past three days. Yellow-shaded area also holding as a familiar area of support, and as long as it stays above it, potential bounces back up. And of course underneath that yellow-shaded area, we’ll look for it to go back down.
Let’s go ahead and take all this information down to the 4-Hour Chart. And we could see how the market has just been bouncing around in between the yellow and the green-shaded area, similar to what it did over here on the left-hand side of the chart in the orange-shaded area over here between the January timeframe and the end of January. January 24 and the end of January bounced around between the yellow and the green-shaded area.
If you were in the Trade Room yesterday, I mentioned the fact that your best opportunities. We were sitting just about the middle of the green and yellow zone during the Trade Room yesterday. I mentioned your best opportunities would be a rally towards the green zone or a dip towards the yellow zone. So, if you took a sell into the green zone, you’re now protecting profit as you’re targeting back down to the yellow zone. If you’re not in a sell, I don’t believe now is the best time to sell it. You’re waiting for the yellow zone, and actually a potential buy. If we continue to find congestion inside the yellow zone, that would be a potential buy, keeping in mind that a breakout underneath the yellow-shaded area looks for it to continue to pressure lower.
Now, I have several different Fibonacci ranges measured here. The previous uptrend, the current downtrend, and the current leg of the uptrend. Multiple Fibonaccis measured here. And interesting how multiple Fibonacci ranges or levels overlap here, inside the yellow-shaded area. Look at all the levels that are corresponding with this yellow-shaded area. So, likely support and of course a breakout underneath there, you look for it to go lower.
So, my expectation today: buying into the yellow zone. Risks or stops are just underneath the yellow zone. If it breaks out, you’ll look for a continuation lower. Buying here, look to target back to the green zone. And of course the green zone is resistance. As it challenges there, you look to protect profit on any buys that you were in. If you are not in a buy at that point, it may even become an opportunity to sell as it challenges into this resistance. And of course, a break above that green-shaded area, likely a break above 103.0, we’re looking for it to challenge the higher highs into the 104-level for the USDJPY today.
