FxWirePro: USD/JPY Chartpack – Technical, Trading And Hedging Setup

USDJPY forms back-to-back hanging man and shooting star candles, the bearish patterns nudge the current trend below DMAs with bearish MACD and DMA crossovers, while both leading oscillators signal the intensified bearish momentum. The bearish streaks from the highs of 109.727 levels seem to have halted at 108.427 levels (refer daily chart).

But vulnerable bulls are struggling to get momentum, though they attempted to test support at this juncture, but bears nudge below 7DMA levels. 

As the interim rallies now appear to be exhausted, and both leading and lagging indicators bearish bias, the prevailing price dips could drag further up to the next strong support at 107.884 or even up to 106.628 levels. Bearish DMA and MACD crossovers also substantiate the downtrend to prolong further, any abrupt upswings should be capped by 7-DMA – 108.703 or 21-DMA – 108.830 levels.

Both RSI and Stochastic curves show downward convergence to the current downswings to indicate bearish strength and momentum.

On a broader perspective, the major downtrend has now resumed on a bearish engulfing pattern with big real body (refer monthly plotting), slumps below EMAs have retraced more than 61.8% Fibonacci levels as both leading oscillators on this timeframe are also in tandem with the selling sentiments and lagging indicators are quite indecisive but bearish EMA & MACD crossover signals weakness. Contemplating both interim uptrend and downtrend in the long term, prolonged range-bounded major trend remains intact.

Trade tips: At spot reference: 108.572 levels (while articulating), contemplating above technical rationale, it is wise to deploy tunnel spread options strategy using upper strikes at 108.703 and lower strikes at 107.884 levels. The strategy is likely to fetch exponential yields than the spot moves as long as the underlying FX remains between these two strikes.

Alternatively, shorting USDJPY futures contracts of mid-month tenors have been advocated, on hedging grounds, we now like to uphold the same positions ahead of Fed’s monetary policy as the underlying spot FX likely to target southwards below 106 levels in the medium run. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.