Trade # 18: USD/JPY Short

I want to be short the US dollar, at least on the short term, because of recent COT data that shows commercial traders holding their largest net-short dollar index position since November 2005. I like the bearish pattern on USD/JPY, so I am going short @ 107.70, with a stop @ 108.60. If price breaks below the 107 level, I will trail my stop.

As you can see on the daily chart above, price action has been fairly choppy/overlapping since the March low, which is indicative of a correction. Notice that price has formed a top against the 50% fib retracement of the 124-->95 move. In addition, price tested a 13-year trendline which has proven to be strong resistance. I like the MACD divergence, and the fact that price has dropped below 108.50.

The 4hr chart shows a head and shoulders topping pattern. Price broke below the neckline around 108.50 and then retested the former support level. I am going short once prices confirms the H&S breakout by dropping away from 108.50.

A final bearish indicator is that retail traders are net short USD/JPY.