USDJPY A Trade Approaching?
Our trading plan follows clear rules, we start from Fundamentals then move to technicals and then Sentiment. If we have a trade idea that satisfies all of our trading criteria we take it if not we leave it alone and wait for the next idea.
How do you apply fundamentals to the USDJPY? The truth is you cannot, the Yen does not pay attention to the economic fundamentals of Japan because we know that the Bank of Japan is not going to raise rates for some time they are committed to keeping rates close to zero for the foreseeable future and the Federal reserve is committed to raising rates as the US economy continues to improve. You can check out the USD surprise index here which gives you a flavour for how strong the US economy has been (even though it has had a notable turn lower in recent weeks).
The truth is that the USDJPY, indeed all of the yen pairs are driven by risk sentiment, when the world looks rosy the yen goes down in value (yen pairs move higher) but one important point is that the Yen tends to move against all currencies in the same way. A simple proxy is stock markets higher yen lower, the mathematical model we use assigns the highest probability to this correlation of any in the market place. The chart below is the S&P 1200, a proxy for the worlds combined stock markets.
You can see the sharp move lower at the start of 2018 but since then we seem to have prices moving higher in channel. This is not the most bullish of moves higher but if it continues we can expect the yen pairs to find a bottom and move higher. Considering the recent news flow this performance is quite strong, we have had trade wars and EM currency issues as well as a significant fall in the price of copper which normally predicts a coming slow down.
The indices just keep grinding higher and
Higher indices means higher USDJPY.
Below is a chart of the USDJPY 4 hour as of today 16th August.
The chart (below) shows what looks like a pretty strong upward moving trend that was being defined by the orange trend line. That line has now broken and as a result we can assume that the cycle from the black (Y) low completed early August with the Blue C. There are two possibilities, if the blue C is the first wave higher then the green box represents an excellent buying area as a textbook corrective wave pattern is unfolding that should terminate around the purple (y). The second possibility is that the blue C marks a temporary top and price is going to return to the April lows around 104. We cannot sell the USDollar, it is the strongest currency across the board at the moment and the current economic situation, including the outlook for interest rates means we are only looking for opportunities to by the dollar. So if blue C is a top we are not intetested in trading, we are only interested in buying and we can only by if all the yen pairs are going to turn higher, this would mean an end to risk aversion. At the moment the Yen is strong so were not able to sell it not yet anyway.
longer term technical
The daily chart two above does not give a definitive view, since 2015 the USDollar has been trading lower in a trend defined by the black line. 2015 marks the top of an impulsive move higher that began in 2012, the price action since then can be seen as a correction of that move hgher and it corrected half of that move back in 2015 and looks to be building a new wave higher from there. The blue C, from the 4 hour, appears to be a decisive break of the black trend line which might imply that the USDJPY is heading to new highs above 125. A promising sign for the dollar long idea.
Technicals for the yen
This chart above is formed by adding together the eight major yen pairs, you can see the collapse in 2008 during the financial crisis and what looks like a confirmed uptrend since then. I am not putting any weight to the black triangle yet as it is unconfirmed. A turn higher from somewhere near current levels would not be unreasonable to continue the higher low higher high sequence.
The USDJPY is approaching an area that the waves suggest might be a good place to buy, the Combined Yen indices suggests that all the yen pairs are approaching areas where a turn higher might be close by.
The clear problem is risk aversion and the current yen strength, if risk starts to settle and the USDJPY makes it into the buying area with omentum indicators oversold we may well decide to take the trade but it is by no means a clear cut opportunity.
For the second time in a week we are taking a short position in the AUDUSD. The wave pattern that we are following is giving an excellent forecast about what is likely to happen. The confirmed bearish sequence mentioned in the first trade is still in place and the first leg down completed in 5 waves. Whenever we get a 5 wave move we expect it to be followed by a similar move after a pullback. A pullback has just completed in 3 waves, a key requirement of pluymmer wave trading and has completed around thearea of the previous wave 4. This would be the smallest size acceptable for the proposed wave B pullback and a large pullback cannot be ruled out.
If this is the end of the pullback we can expect a 5 wave move lower to around 0.71 giving us a 7:1 potential risk reward. If this is not the end of the pullback then we may get stopped out here and will look to sell again at the next opportunity. A good bout of risk aversion would really help this trade, so some trade war hype or an opec crisis would push us to target.
Both the GBPUSD and the AUDUSD developed bearish patterns overnight by breaking to new lows. I am interested in taking both but the AUDUSD was the first to put in a nicve pullback giving me the opportunity to enter short. I took the trade at 0.7405 risking 2% of equity hoping for a return around 3:1.
The chart below is live from Tradingview and shows the break of the low on the daily chart and the potential size of the move lower, i am initially targetting a much smaller amount than this wave c move (3:1 is only at 0.7321).
Of course the trade might not work and it is possible that the pullback is not yet complete, if so I will look to sell again at a higher level, throughout the trade I will look to move the stop loss toward the entry point protecting my equity in the case that this is not the time to enter.
Probability for this trade is not high, especially as I am still expecting the USDMXN to make it lower so that the trade will become active.
THIS TRADE CLOSED FOR A 4% RETURN ON EQUITY WITH rISK REWARD = 2:1
These two pairs are in a really strong trend and as a result are great assets to be trading. I am going to try adding my tradingview charts to the blog so we can see how they develop. It is an experiment to see how it goes
Patience Paying off.
All of my trades follow the same technique, I buy pullbacks in assets that are trending higher and I do not really miond what that asset is. In january I have bought Gold, Apple shares, Currency and the Australian stock market. Next month it could be Natural gas and coffee, what we buy is not important it is WHEN we buy it.
Profitable Forex Trading
It was an amazing week, applying the system consistently and carefully delivered outsized gains. GBPNZD at +660 pips made the most dollars but Bitcoin delivered thousends of pips for the biggest pip gain.
November was an accurate month with 73% of trades taken winning. I published 24 trade ideas but only 11 of them became trades resulting in 8 wins for 5,814 pips.
December looks like it might be just as profitable, the markets are trending and that is when swing traders make money. December is always a truncated month, we effectively only have 3 weeks trading as a result I am reducing the price of all of my signals, they will be half price for December and January. I have exciting new products for January including a daily livestreaming market update and trade analysis, I would like to get a lot of traders invloved if I can. I love the system I have developed and enjoy showing it off and teaching it to new traders.
Remember to check out the $50 trade blog if you are a relatively new trader that is a great way to learn and develop the skills needed at a minimum cost.
Forex Outlook for next week
A couple of good trades this week including a 700 pip gain from EURNZD and a long on bitcoin balanced by a couple of failed long yen trades (-200). November is shaping up to be a great month with over a 1000 pips booked already and a longlist of trades that seem ready to go.
The video looks at the indices, where we missed a couple of trades, and explains how we are looking to trade them next week. It also consider why the two yen trades have failed, with indices moving higher so should the yen pairs
A good week of trading
It was a busy week with trades in Copper, Bitcoin, FTSE and EURNZD. After 11 days in November we are showing a profit of 658 pips and most of those pips are explained in this video.
Bitcoin appears a great trade at the moment and my fundamental ideas for the crypto are presented in the video.
Outlook for Forex trading next week
We have the biggest journal for several months with a lot of trade ideas about to trigger into trades. The journal is where we store all of the pending trades and is the document that generates all of our profits.
If you would like access to the journal please visit the signals page.