Jan 13 - USD JPY Trade Idea

Recent update of this trade idea:
1. Jan 21 update: http://cmellon-deltatrading.blogspot.com/2010/01/jan-21-usd-jpy-approaching-mtd-8-time.html
2. Jan 22 update: http://cmellon-deltatrading.blogspot.com/2010/01/jan-22-usd-jpy-situation.html

I am of the opinion that USD JPY is soon going to rally fast and furious (and so do other JPY crosses for that matter). If my analysis is correct, there's an attractive opportunity to go long USD JPY soon for a medium term play (around 1 month holding period). You'll find more and more FX commentators coming up with fundamental reason of why YEN is weakening next month, but as usual, they'll do it after the fact has happened ;-)

We'll start off with the SLTD (MC4) chart below


As you can see above, SLTD 8 (MC4-8) has always been due near green line. There's a good chance that SLTD 8 low has been due at 85. The reason is that if I measure the length of time from SLTD 1 to SLTD 8 in the current cycle, it's already 208 weeks or 1456 days. A full SLTD cycle from SLTD 1 to another SLTD 1 is on average 1461 days. In the current cycle, we have almost reached the average 1461 days even though we are just in SLTD 8, so it's already very late and it's highly likely that SLTD 8 is IN at 85.

In addition, we could see three SLTD in a row (SLTD 4, SLTD 6, and SLTD 8), which tells us that the higher time frame (the MC5 - 19 year metonic cycle) has also been due at 85.

Next we go to the smaller time frame and look at MTD chart.

MTD 7 has always been due near yellow line. I currently put MTD 7 high IN at 93.76. We could see that MTD 7 (93.76) is higher than MTD 5 (92.3) telling us that LTD (MC3 low) was IN at 85.

Looking at previous two cycles, the length of time from MTD 7 to MTD 8 is 22 days and 15 days. We could expect the same approximate length of time in the current cycle too, which means that in the current cycle, MTD 8 low's arrival time zone is around Jan 25 - Jan 29. It could possibly be earlier as many of the higher TF (MC3, MC4, MC5) are all travelling UP.

I am targetting a probable 61.8 fib as MTD 8 low due around Jan 25 - 29, which makes a head and shoulder formation. But there's a possibility for 50 fib support too near the kumo cloud (see ichimoku chart).

From the past two cycles, the length of time from MTD 8 to MTD 9 is 32 days and 43 days (around 1 - 1.5 month). In the current cycle, we may also travel up that long once MTD 8 low is IN. Also notice in the past two cycles how strong the move was from MTD 8 to MTD 9. It looks like EW wave 3 type of move. We could also expect such a strong move too in the current cycle once MTD 8 low is IN. This is supported by the fact that MC3, MC4, and MC5 are all IN. When multiple higher time frame are due at the same time like this, movement tends to be really strong

Next we go down into smaller TF ITD.

As I wrote in my previous post, a break of 91.23 (ITD 11 low) signals that MTD 7 high has arrived at 93.76. We are therefore travelling down to ITD 1 low which has always been due near red line (that's also around end of Jan). This coincides well with the timing for MTD 8 low.

Again I am targetting 61.8 fib for a possible head and shoulder formation, but 50 fib could be a strong support point as well due to the cloud top (see ichimoku chart). Or the market could retest close to 85 to convince and trap the bears as well as testing bulls' resolve and psyche.

Next we'll go to Ichimoku chart

Above is Ichimoku chart that I use to target possible price for MTD 8 low. Delta shows direction and time, but not price. For price target, we could use EW, Ichimoku, trend line or any other thing that you like, but for this time, I decide to use Ichimoku since this is Yen pair and Japanese traders love to trade with Ichimoku. For an example of using Elliot Wave to project price target near Delta turning point, you can look at my GBP NZD analysis.

You could see that Tenkan Sen has crossed above Kijun Sen above kumo cloud, which in Ichimoku world is considered a strong bullish signal. Since Delta says MTD is travelling down to around Jan 25 -29, I circle possible price support near this time period. You could see a kumo cloud top in that period, which also coincides with 50 fib retracement from 85 - 93.76. That's definitely a good level to start buying, and keep adding if it drops more.

So to summarize the plan is to buy at MTD 8 low around Jan 25 -29 (possibly earlier) with probable reversal price zone near kumo cloud (50 fib) or 61.8 fib (H&S). Price should not break lower than 85 since MC3, MC4, and MC5 are all due, so this could be the stop loss. And hold the position until MTD 9 high which is around 1 - 1.5 months. And based on previous two MTD cycles, this MTD 8 to MTD 9 move could be really strong.

Good luck.