Trade of the week: short USD/JPY

(AI video summary)

Current trade overview: 

In the current market environment, a trading opportunity has been identified with USD/JPY. The strategy involves taking a short position based on technical patterns suggesting a continuation of the established downtrend after a corrective phase.

Trade setup

• Entry point: short USD/JPY around ¥144.00, with current levels also providing an opportunity to enter
• Stop loss: set at ¥146.00, positioned above last week's high to limit potential losses if the market moves against the position
• Target: aim for a downside target of ¥138.00, with potential for further decline

Risk-reward ratio

This trade offers a favourable risk-reward ratio, with approximately 2 points of risk for 6 points of potential reward. As with all currency trades, proper position sizing and risk management are essential.

Market context

USD/JPY has recently completed what appears to be an 'ABC' zigzag correction in Elliott wave terms. This three-legged correction pattern is similar to the formation observed in March, which was followed by a continuation of the downtrend. A sell signal has emerged, suggesting the corrective phase has concluded and the broader downtrend is resuming.

If the pair breaks below the April low, which coincides with the September 2024 bottom at approximately ¥139.58, the next significant support zone comes in at levels last traded in July 2023, between ¥137.50 and ¥138.00.

Cautionary note: while this trade presents a structured opportunity, market conditions can change rapidly. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade.