Is the Japanese Yen Set to Strengthen Further? We Think So.

Quotable

We’re fools whether we dance or not, so we might as well dance.

Japanese Proverb

Commentary & Analysis
Is the Japanese yen set to strengthen further? We think so.

We recently told our Black Swan Forex subscribers to go short USD/JPY. We expected the Japanese yen to strengthen against the US dollar. Our rationales for this view included technical and sentiment indicators. Below is the technical chart setup, which includes our short-term Elliott Wave analysis and brief commentary, we shared with our Black Swan Forex service subscribers to support this trading idea:

Update: USD/JPY Hourly View

13 May 2014/9:00 a.m. ET

Issue #1110

USD/JPY Hourly [last 102.12]: Looking for a sharp move lower in major C. The recent rally into the high at (b) represented approximately a 61.8% retracement of prior wave down (a). Risk level is tight and just above the recent hourly swing high at 102.36 (confluence of resistance at 102.40).

As of Friday’s close, our subscribers are still short this position, but with an adjusted stop-loss level we recommended on Friday morning that locks in up to 55 pips of profit (or approximately $538 profit per contract, assuming a regular sized 100k spot forex position).

So, considering you can control this same 100k unit position with about a $2,000 commitment of margin funds in your account, effectively the return on investment is approximately 27 per cent on this position at the moment. That is the power of forex trading. Of course, the power comes from using high leverage and it can cut both ways. This why risk control is vital, and something we consider very seriously.

We always issued a stop-loss level to our subscribers; this defines how much risk they should allow on a particular trading idea. But in addition to the initial risk-level we provide, we do our best to help our subscribers to continue to reduce risk and lock-in open profit as the trade moves their way. Thus, we are there for to help clients throughout the life of a trading idea until either stopped-out with a loss; stopped out with a profit at an adjusted risk level, or we achieve our in initial profit target on the trade.

So what is our profit trade on this short USD/JPY trading idea? Our Elliott Wave pattern analysis suggests a target down to 99.41. If correct, it means there is plenty of money left to capture on this trade idea. Here is our daily USD/JPY chart so you can see the potential:

One other thing we like about this trading idea, i.e. expecting the yen to strengthen against the US dollar, is the fact most speculators still hate the yen and expect it to weaken.

In fact the latest weekly Commitment of Traders Report issued by the CFTC, which we believe is an excellent way to judge market sentiment in currencies, shows small speculators are a whopping 82% bearish on the yen (expecting it to weaken against the dollar) and only 18% are bullish (expecting the yen to strengthen); those types of numbers indicate a sentiment extreme may be in the making. Mr. Market just loves those things.

  • ForExchange

    Hi Jack,

    great analysis! It is a pitty that you do not write such an analysis on a daily basis because you give a great opportunity to learn. I really like that you put the Elliot Wave and the COT Report in your article because I find both of them interesting and useful but noone else uses in their analysis these methods on the site! Especially your COT reaction I like.

    I have though two concerns regarding this trade so I am interested what happends at the following points:
    – 100.75 is a major daily low on the chart and might be a strong support level
    – 100.00 is a major psychological level to break and I do not know if the trade goes through that one

    Well, we will get answer for both issues, I am waiting for your answer and for the further analysis!

    ForExchange