USDJPY has been moving inside a rising channel on its 4-hour forex time frame, with price gearing up to test the top of the range around the 103.50 minor psychological resistance.
Stochastic is already in the overbought zone, indicating that the rally might end soon. However, the indicator has yet to turn from the overbought region and, until that happens, buyers could stay in control of price action.
If price turns from the top of the trend channel, price could move back to the bottom of the channel near the 102.00 major psychological support. If buying pressure remains strong though, the selloff might last until the mid-channel area of interest only.
Shorting at 103.50 with a tight stop around 104.00 and a target of 102.00 could yield a 3:1 return on risk. Adjusting the stop to entry once price reaches the middle of the channel could be a good way to protect profits and minimize exposure.
The main event risk for this trade is the release of the FOMC meeting minutes, which might show that the Fed isn’t considering hiking rates yet. However, the reaction to the release might be subdued as traders refrain from taking any huge positions ahead of the Jackson Hole Symposium starting Thursday.
By Kate Curtis from Trader’s Way