With markets reacting nervously to this afternoon’s news that Republicans have abandoned the planned passage through Congress of a bill on deficit reduction, the Dollar: Yen set up I discussed in recent posts looks a chance of being triggered today
Wednesday’s high was within 0.6% of the top end of the Fibonacci cluster. Using the approach of allowing a small tolerance filter to determine what is close enough, this set up will trigger if Wednesday’s high is confirmed as a trend peak. This price filter approach to entry is outlined in the video on Fibonacci strategies I posted recently.
One approach to strategy is to enter on the first close below the candle making the trend peak. This would be triggered by a close below the arrow on the chart below.
If this doesn’t happen, we may still push a bit higher and make a new peak at the cluster zone
If the trade triggers tonight then a move above Wednesday’s high would mean that our hoped for new down trend has failed. This makes a spot just above the peak the obvious place for the initial stop loss.
Remembering that the set up assumes that a trend peak here will trigger a retracement of the rally from black “2”, a conservative approach to the profit target would be to use the 38.2% retracement level. A clear majority of retracements get at least that far. For good measure this level is also close to the support of the 40 day moving average.