The policy divergence between the FED and the BoJ keeps me fundamentally bullish on this pair. The BoJ announced yesterday it would leave its policy unchanged, despite lower inflation. Had they announced a surprise move to spur inflation, we would have already seen a much higher price for this pair, but they refrained from additional easing. After the bad NFP number last Friday, the FOMC minutes strengthened the dollar somewhat with several at the FED judging that data is likely to warrant a June rate hike. Despite my fundamentally bullish view, this pair tried and failed several times to break the 122 handle since December last year and has basically been ranging –in rather wide swings- between that handle and the 116 handle, as it currently sits above the 120 handle, having risen on the FOMC minutes release. The market might be ready to attempt to go higher again.
Meanwhile, on the 4H timeframe, we can see the contours of a bearish Bat pattern developing. Price is attempting to pass the B point and travelled 60% on the way from C to the potential reversal zone (PRZ). With this, the set up qualifies as a trade candidate and it goes on my watch list. Because even though I am bullish on this pair, trends never go in a straight line and advanced price patterns like the Bat have a positive expectancy when traded consistently. When defining the potential reversal zone (PRZ) for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1272 AB = CD) and III: a BC expansion (in this case 1618 BC). This defines a clear zone, 31 pips wide, represented by the orange lines in the chart. There is structure inside this zone (a 4H resistance level), which increases the edge of a reversal. Should price action test the PRZ and reverse convincingly, I would enter short. SL goes 15 pips behind X. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 200 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 3.5!
P.S. Advanced traders can trade this pattern for completion using the BAMM strategy, which I have not described here.
Meanwhile, on the 4H timeframe, we can see the contours of a bearish Bat pattern developing. Price is attempting to pass the B point and travelled 60% on the way from C to the potential reversal zone (PRZ). With this, the set up qualifies as a trade candidate and it goes on my watch list. Because even though I am bullish on this pair, trends never go in a straight line and advanced price patterns like the Bat have a positive expectancy when traded consistently. When defining the potential reversal zone (PRZ) for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1272 AB = CD) and III: a BC expansion (in this case 1618 BC). This defines a clear zone, 31 pips wide, represented by the orange lines in the chart. There is structure inside this zone (a 4H resistance level), which increases the edge of a reversal. Should price action test the PRZ and reverse convincingly, I would enter short. SL goes 15 pips behind X. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 200 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 3.5!
P.S. Advanced traders can trade this pattern for completion using the BAMM strategy, which I have not described here.
You don´t need to be a weatherman to know which way the wind blows - B. Dylan