Introduction
The USD/JPY has not been the easiest pair to trade over the summer months because it has been trading in a fairly constant sideways trading range with little volatility.
Indeed the average true range is currently around 52 points per day, which is a major drop when you consider that its average daily trading range was around 90 points per day back in February.
Nevertheless the recent price action suggests that there could be a decent trading opportunity just around the corner for this particular pair.
Pre-Breakout Trading Conditions
The best breakout trades often occur when the short and long-term exponential moving averages are all very close together, and the price is trading in an ever decreasing channel, and that’s exactly what we have with the USD/JPY pair right now, as you can see from the daily chart of this pair:
The channel is clearly indicated by the two trendlines, and you can see that the 20, 50, 100 and 200-day exponential moving averages are all close together as well.
This indicates a period of consolidation and indecision, but more importantly, it suggests that there could be a significant breakout very shortly.
Trading Opportunity
The price is currently trading right in the middle of this channel at around 111.00, so there isn’t an opportunity to open a position right now.
However it may be worth opening a long or a short position if the price breaks decisively out of this channel (and closes outside of this channel), at which point the price will be around 112.00 or 110.00.
As ever, there are no guarantees of success, even with the best-looking set-ups, and I am certainly not recommending any possible trades. These are just my own personal thoughts.
However what I will say is that forex trading is all about finding high probability set-ups and managing your risk so that you come out ahead over time, and this could well be a high probability trading opportunity if the trading conditions are right and the breakout appears to be a decisive one with a strong breakout candle.
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