FxWirePro: USD/JPY hammer prolongs range-bounded trend, bulls bank on 21-DMAs but unlikely to drag – Trade tunnel spread and short hedge

A Glance at Technical Analysis: 

• USDJPY minor trend has spiked above DMAs upon the formation of the hammer at 107.656 levels, shooting star counters at 111.882 levels. While bulls are attempting to test support at 21-DMAs. 
• Upon any breach below these levels, more slumps seem to be likely as both leading oscillators (RSI & Stochs) indicate overbought pressures. 
• On the flip side, the major trend has been in the consolidation phase, while trend indicators indecisive, we see bullish invalidation on retrace below 50%. Although hammer pattern has occurred at 106.260 levels, ever since then the minor price trend has been spiking through range-bounded trend, hanging man has occurred at 112.942 levels to counter.
• Well, we see stiff resistance at 112.369 and strong supports at 110.294 levels (on daily charts). The major trend, bulls seem to be exhausted at 61.8% Fibonacci levels from the lows of June 2016, (refer monthly plotting), the trend on this timeframe, is stuck in tight range. 

Trade Tips: Contemplating above technical rationale, it is wise to bid tunnel spreads with upper strikes at 111.438 and at 110.733 levels. The strategy is likely to fetch leveraged yields as long as the underlying spot FX keeps dipping but remains well above lower strikes on the expiration.

Alternatively, on hedging grounds, long-term investors are advised to stay short in futures contracts of mid-month tenors. The writers of the futures contract are expected to maintain margins in order to open and maintain a short futures position.

Currency Strength Index: FxWirePro's hourly USD spot index was at -4 (which is neutral), while hourly JPY spot index was at 66 (bullish) at 08:58 GMT. 

For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex