FxWirePro: USD/JPY Interim Bulls Make Upside Traction At 7-DMAs, Wedged Major Trend – Trading & Hedging Setup

USDJPY minor trend is showing volatile trend (oscillating between 106.108 and 105.809 levels), although minor trend has shown little overbought sentiment, further upside traction is still possible upon test of strong support at 7-DMA levels.  

As the minor trend bounces back above DMAs with bullish crossovers, bulls are still on the cards. However, any failure swings at stiff resistance zone of 106.103 – 106.511 levels, may resume bearish trend upon overbought pressures (refer daily chart).

The current price is attempting to nudge towards DMAs as both leading oscillators signal faded strength & the uptrend continuation is likely on lagging indicators (bullish DMA & MACD crossovers).

On a broader perspective, the major trend still remains range-bounded swings upon spinning top, bearish engulfing and shooting star patterns (refer monthly plotting), the major trend is capped by 100-EMAs and 100-DMAs.

With leading oscillators signal overbought momentum, while lagging indicators looking quite indecisive but bearish bias, contemplating both interim upswings and the major downtrend in the long term, prolonged range-bounded major trend remains intact.

Trade tips: At spot reference: 105.949 levels (while articulating), contemplating above technical rationale, it is wise to deploy tunnel spread options strategy using upper strikes at 106.110 and lower strikes at 105.725 levels. The strategy is likely to fetch exponential yields than the spot moves as long as the underlying FX remains between these two strikes.

Alternatively, we advocate shorting USDJPY futures contracts of mid-month tenors on hedging grounds as the underlying spot FX likely to dip southwards below 104 levels in the medium run. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.