USD/JPY looking to fill gap above

The US dollar has rallied against the Japanese yen during trading on Tuesday, as it looks like more of a “risk on” move has come back into favor. Beyond that, you should also pay attention to the S&P 500 as the two do tend to move relatively similar. Ultimately, short-term pullbacks should be thought of as buying opportunities unless we break down below the ¥110 level, which of course is an area that was rather important more than once.

Gaps get filled

Gaps almost always get filled when it comes to currency markets, and in fact it’s extraordinarily rare that it takes more than a couple of weeks. That’s essentially where we are right now so it makes sense that this pair would rally. It looks as if equity traders are trying to push the S&P 500 and other stock markets around the world higher, so if that’s going to be the case this pair will get a bit of a boost. Because of this, it’s very likely that we will get a bit of a grind more than anything else because although things look a little bit bullish, it doesn’t look overly so.

Because of this, you will have to be very patient but it certainly looks as if we are going to go looking towards the ¥111 level. That extends up to roughly ¥111.15, so breaking above there would be an extraordinarily bullish sign. Unfortunately, there is significant resistance just above there so I would not get too excited until we got above the ¥112 level.

All things being equal it looks like we are going to rotate between ¥110 level on the bottom, and perhaps as high as ¥111.15 on the top, maybe even ¥111.50 above there. As far as a breakout is concerned, we would probably need to see some type of significant turn of events in the US/China trade getting the bullish traders around the world into hyperdrive.

Noisy trading

Unfortunately, noisy trading is all that we have to offer these days, so you should keep your position size rather small. That doesn’t mean that you can’t profit but remember that your main job as a trader is to preserve your trading capital, and therefore when news driven trading is the main theme of the day, you need to make sure that you fight the natural interest and instinct of trying to “swing for the fences.” Remember, consistency is going to be key when it comes to longevity, so therefore cutting back your position size and aiming for obvious trades, such as filling the gap, makes a lot of sense when it comes to trading this type of marketplace.

This isn’t to say that you can guarantee that we are going to fill the gap, but all things being equal it is the most likely scenario based upon historical precedents. That being said, you should also keep in mind that if we were to break down below the ¥109 level, then we could go to the ¥108 level but this is probably going to be with some type of obvious financial crisis or major problem.