Japanese Yen outlook

Today I want to talk a little about Japanese Yen and my outlook for it in the nearest future. It is not a big secret that most positions in fx market has been opened in Japanese currency pairs and these have made the biggest moves in 2012. Yen has fallen more than 1500 pips against Euro since the end of July (2012) and quite a lot against other European, commodity currencies as well as US dollar. Both direct and indirect comments from Bank of Japan and newly elected politicians on their willingness to see Yen weaker and deflation finished caused Yen to depreciate significantly. Most expect the currency to continue going down in 2013 too. Is this bearishness towards Yen really going to continue next year?



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First of all we have to remember that markets are run on expectation, not realization. Some currency may strengthen on positive expectations and weaken significantly when those expectations are realized. Why? Because by going up market prices in those expectations and if realization does not surprise the market it will usually not continue going up. The same can be said about negative expectations. Realization of those expectations does not have as strong effect as the very expectations do. 

Now, the newly elected government may have a lot of plans to implement, but whether they will do that and how fast as well as how long it is going to take remains a question. It is very probable that expectations have reached their maximum and will be disappointed quite soon. However, one should not go against the market even if one sees the situation differently. Market maybe absolutely wrong and still go in the same direction. Timing is the key. One has to wait for bulls or bears to lose steam before one can see a turnaround in prices.

Now, since market has become one sided and everyone is short Yen it will be more and more difficult for BOJ to convince investing community to short Yen even more and keep it at even lower levels than it is now. I still keep to a position that after Christmas we may see Yen going even lower and reaching 115.00 in eur/jpy (that is 200 simple moving average on a weekly chart). 

From technical perspective we see a lot of congestion in that area. Of course, this is simply past price action and it may not be stopping point at all, but we still should keep the area (115.00) in mind as that is the level where price stalled a lot of times in 2010. And if we see some change in the tone of BOJ or Japanese politicians we may see a sudden shift in the trend. It is difficult imagine how unwinding of short Yen positions can cause the currency to advance. European currencies may fall like a rock against the Yen in case the scenario comes true. I saw it dozens of times. When bullish positions are closed and bearish opened you can see a rise in Yen of 1000 pips in a matter of a week and sometimes even faster. 

Ok, the drop may not be that dramatic. It may not be dramatic at all! However, from now on I am going to watch and see whether the sentiment of the market is going to change or not. Now, the change may come not because Japanese officials say something, but because European Bank members make some bearish remarks about Euro or Ben declares something dovish. 

For the time being, one may try some small buys in eur/jpy, gbp/jpy on dips, but I would not hold a big position against Japanese Yen. My target for gbp/jpy is 140.00 level. 

Ok. I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

Day trading example with eur/usd

Hi, I wrote about my expectations regarding eur/usd pair and gave you the entrance point on the pair. It was a breakout trade that started at 1.3188 level with a stop loss order at 1.3144. I took partial profits at around 1.3240 and then 1.3290 level. As you saw the pair collapsed yesterday. Some analysts started screaming about the end of a trend. I already mentioned in my previous post that I do not expect the pair to reverse before New Year and I intend to search for opportunities to jump into the market by going long the Euro against the US dollar. And I haven’t changed my opinion on the matter. I am still watching the market closely to see for extra day trading opportunities. One of the kind presented itself today and I want to talk a little about it in the post. 

When I search for opportunities to day trade I always want to do one important thing – to enter my day trades in the direction of a prevailing tendency. If the market is not in a range, but trending or in a short term swing (as eur/usd is at the moment) I will never make counter trend trades, but only implement those in the direction of a tendency. If you look at eur/usd chart you (with no doubt) see that the pair is in an upward swing. It means I am only willing to go long Euro and sell short US dollar. 

Now, how do I choose a spot where I get into the market? Firstly, I wait for a retracement or a counter trend move. Secondly, I find some nearest support level and wait for the security to get there. Thirdly, I wait for reversal patterns at the level to see whether counter trend move is over or not. Those usually are 123 patterns and candle reversal patterns. If everything happens according to the described scenario I go long when the security leaves 123 pattern or I place a buy stop order above the bullish candle (1 hour or 4 hour chart). 

So, I saw eur/usd collapsing yesterday. Pretty sharp! It means a counter trend move started. I started searching for a possible place of support. And guess what, it wasn’t really difficult to find. You most probably know this sampler saying of classical technical analysis that resistance becomes support and support becomes resistance. I have mentioned that I took a breakout trade at 1.3188 level a few days ago. The area was resistance at the time. Guess what has it become now? Support! 

So, what happened later? The pair came to this level, formed 123 pattern and bang! Went up again. If you look at the chart below you will see the 123 pattern on 1 hour chart around the level. When I saw the pattern I placed my buy stop order above it and the market took care of it by breaking the level and going up.

Oh! I forgot to tell you how I get out of my day trades. I watch for obvious resistance and support levels, but most often I close my positions at an even number. Today the pair managed to reach 1.3294 level before going back to today’s breakout point of  1.3215 (well, a bit lower) and is consolidating now. 

I would not be surprised if the pair took off upwards again tomorrow. Looks like another 123 pattern is formed at the level! I seldom trade Asian session (only about 5 percent of my day trades are implemented during that time), so I will wait for early European session to see how everything looks at the time. I might take another long in eur/usd tomorrow. 

I do not think I will keep it open longer than 8 hours as quite a few brokers will not be working during holiday season and mine seems not to be working at the time too. So, I do not want to take risks trading during this time. 

Ok, I think it is time for me to finish now. I promised to give you some thoughts of mine on Japanese Yen and I did not forget my promise. However, I will not do it today. Maybe tomorrow, but most probably some day during the weekend.



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I hope you understood the way I day trade and it will help you in your trades. See you soon.

Ok. I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.