Long-term Long on USD/JPY

It’s been a hot minute since I’ve had a trade on in the markets, but it looks like the time may be right to play the pair I’ve been watching for a while now: USD/JPY.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

USD/JPY Daily Forex Chart

USD/JPY Daily Forex Chart

I’ve been bullish on USD/JPY for a while now, but held off on entering a long position due to the risk-off moves sparked by the emerging market “mini-crisis” in January.  The fear seems to have bottomed out and now I can play the diverging monetary policies between the Federal Reserve and Bank of Japan.

Just to quickly recap: according to new Fed Chairman Janet Yellen, the Fed is on the path of reducing their easy monetary policy programs, while the BOJ is on the path of increasing theirs.  Just today, the BOJ announced plans to increase their lending programs in Japan, expanding their easy money policies. This divergence should theoretically lead to USD/JPY moving higher over the long-term, which I’ll try to ride if it does play out that way.

Technically, we saw the pair fall from 105.00 to 101.00–an area of previous resistance, now possibly support? Also, 101.00 -102.00 is the 50% Fibonacci retracement area of the move from 97.00 in October to the recent 105.00 swing high in January.  I’m gonna guess that technicians are watching this area closely and that buyers are already nibbling around here, as shown by the bounce higher from 101.00.

So, I decided to go long at market in this area after today’s BOJ action of expanding their lending programs, with a stop near the recent swing low.  I figure if it does get back down there, then something must be up and I should get out and reassess. My max target is the next major psychological area not seen since the summer of 2008, and it’ll probably be a bumpy ride on the way there.  Here’s what I’m doing:

Long USD/JPY half position at market (102.50), stop at 100.85, max profit target at 110.00.

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 4.5:1.  I also plan on adding to this trade and trailing my stop if it does go my way to maximize my profit potential safely.

There are two major risks to this trade that I see at the moment: 1) if the Fed stops or reverses their Tapering plan and 2) further global economic weakness sparks risk aversion once again.  At the moment, I think both scenarios are low probability but could quickly change, as what we saw with emerging markets in January.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

  • Pipstantine

    Hi There. I spotted the same last week and I rushed into Long trade and was triggered with Stop Loss of few hundred dollars. Perhaps I should re-consider into another Long trade again since we are on the same thought now……..

    • Pipcrawler

      Greetings Pipstantine…. Why did you get stopped out of your last trade? Do you have a trade journal detailing that trade? Beyond being long biased, how are you structuring your trades and what are your exit plans?

      • ForExchange

        Hi Pipcrawler,

        can you suggest maybe something on what kind of trailing stop do you use? Too often my trailing stop is out because of a fakeout and I am not sure with how many pips should I have my trailing stop.

        Thanks

        • Pipcrawler

          Hey ForExchange…setting stop losses and managing them is an art in itself, so I’m hesitant to give out specific thoughts on it. But generally, my philosophy is to look at the average volatility and use some percentage of that based on upcoming events and how long I plan to hold the trade.

  • Jo

    I dont know about the 110 target. All predictions i could find in december put the pair ranging at 102 for q1 and round 105 for q2 to q3, after that they go from 106 to 111 … 110 might be steep but with the right news it might hit that and fall back. I dont know how much you cost every night on rollovers and maybe the stop loss is dangerously close since one bad fomc statement might drop it to around 100 maybe 99 even but far be it from me to tell someone how to manage risk. Thats all personal. I dont think much can go wrong back to 105 over time, after that its crystal ball completely for me. (dont take it as advice please, its just an opinion based on whatever i could dig up, no one said anything about how deep it could fall on events like indeed the emerging market crisis … which turned out not to have a real impact like last years drop to below 93 , but even that recovered back to normal level) I think a situation like 2008 is somewhat unlikely since that is what everyone on both sides is actively trying to prevent BUT … this is forex, you have done this a lot longer than so i dont need to state the obvious on surprises that can happen without warning …

    • Pipcrawler

      Hey Jo…thanks for your thoughts! Yeah that 110.00 target is up there, but I’m not really predicting it’ll get up there…that’s just where I see the next major area of potential resistance. I’m just going with the monetary policy divergence forming, and typically, it tends to favor the currency who’s central bank is tightening up on easy money. So, I’m playing the odds based on past market behavior here, managing my risk, and seeing what the market gives me. That’s all I can control I think.

  • Jitendra dash

    USD/GBP &USD/URO is going high,that means USD/JPY is going down,so I think USD/JPY will go down 98.100

    From 98.100 it will go high 109

    • Pipcrawler

      Thanks for sharing your thoughts Jitendra! Yeah, USD is broadly weak at the moment and if it breaks below this 101.80 area, then its a sign of risk aversion taking over and I have to close early. The joys of trading 🙂

  • I am commenting because I am long also on this pair. I am going to try to make this a long term trade with possible adds to the position if it starts to move in my direction. It is interesting to note that most of the people in the survey believe that the usd/jpy will go to 110 I tend to agree and if they are right then there should be many buying opportunities along the way.

    • Pipcrawler

      Thanks for your thoughts Casey. I hope your survey is right 🙂 At what points would you add to a long position? Every 100 or 200 pips? Or would it be based on price action?

  • I will wait until I have some profit locked in and then when the price has a pull back I will then add to the position. So the answer to your question is yes it is based on price action.

  • Karlittern

    Hi Pipcrawler,

    great analysis and trade!! I ‘m following this pair since January paying attention to 102.00 level as a lot of bumping happened during Feb.
    How long are you planning to keep this trade? Are you waiting a shock up movement of the pair?
    Cheers!

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