The USDJPY has ended its sell-off which took this currency pair from its resistance area which is marked in light grey in the above H4 chart down into its support area visible in light blue. The sell-off was steep and supported by fundamental data out of Japan which added strength to the rally in the Japanese Yen. The Bollinger Band indicator supported the sell-off in this currency pair, but is now pointing towards a potential end of this move.
The USDJPY has now formed a double bottom chart pattern inside of its support area which offers a bullish trading signal and forex traders are likely to realize floating trading profits in this currency pair by closing short positions in order to book the profits. This can lead to a short-covering rally which will take this currency pair above the middle band of the Bollinger Band indicator from where the USDJPY can enter a full short-covering rally.
Forex traders are recommended to enter long positions at 120.400 and below this level in order to take advantage from the expected short-covering rally. Conservative forex traders should wait for a breakout above the middle band of it Bollinger Band indicator before entering their long positions. A take profit target of 123.650 has been set for a potential trading profit of 325 pips on the H4 Chart. More buy orders are expected after the USDJPY completes its breakout above the support area.
Forex traders should protect this trade with a stop loss level at 119.000 for a potential trading loss of 140 pips which will result in a Risk-Reward (RR) ratio of 2.32.
Long @ 120.400
TP @ 123.650
SL @ 119.000