Close Trade: 2009-02-18 09:25
Good Morning! Soon after my trade idea, my short position was triggered at 92.00. And after a brief stint in positive territory, USD/JPY has made it’s way higher and has broken the falling trendline and the 93.00 to invalidate my trade. I have decided to close my position and take a small hit.
Closed position at market (93.32)
Total: -132 pips/ -0.73% loss
We are seeing a shift in market dynamics at this time as USD/JPY breaks its correlation to “risk tolerance” movements. In the past year, you could almost guarantee that USD/JPY would move along side global equities and commodities when positive or negative sentiment was priced into the markets. Now it’s different. We may be seeing the next leg of financial downturn as the US stimulus package disappoints and nothing seems to be getting better in housing or jobs. Where are traders to invest? Apparently, with recent devastating reads in Japan’s GDP numbers and the BoJ efforts to keep the Yen appreciating any further, the Yen is starting to lose its status as a ‘safe haven’ currency. This leaves little else to run to except to Gold and the US Dollar. Gold is a no brainer as it has always been a ‘safe haven’ asset to run to in times of crisis. But why the Greenback? Even with all of the fiscal miscues, the US still has a relatively more stable government and the deepest debt markets in the world. If foreign investors want to hide there for safety, they have to switch to Greenbacks. Also, the Greenback is still the world reserve currency, which means transactions in commodities will continue to be done in US Dollars and foreign central banks holds trillions in US Dollar reserves. Do you think central bank officials would want the value of their main assets to drop in value? Probably not, and I’m sure they will do what they can to avoid that scenario – at least for now.
So, as we continue to stroll along in this financial crisis, the US Dollar may be the currency of choice to defend further asset depreciation in the short-term. This means i will probably have to change my usual strategy on USD/JPY as it looks like the market dynamics have changed. We may not see continued drops, but more of a rangebound behavior as the US Dollar and Japanese fight each other for safe haven supremacy. That’s my humble opinion anyway.
Trade Idea: 2009-02-16 17:52
I’ve got the four hour chart, and we can see USD/JPY hitting some resistance at the falling trendline and previous highs around 92.00. Stochastics are in overbought territory and appears to be turning lower. Have the bulls lost the will to fight and will we see moves lower? Could be, but let’s look at some fundies first….
This past weekend the G-7 met to discuss the global recession. Traders didn’t take to kindly to the lack of discussion on currencies, and went into “risk aversion” mode as soon as markets opened this week. We may see further “risk aversion” in the coming weeks as it appears the global recovery will not begin any time soon. Probably not until the end of 2009 at least. I should also note the latest GDP numbers out of Japan hit -3.3% – the worst since 1974 during the oil crisis.
So, global economy is still bad and there aren’t any signs of turning any time soon. More carry trade undwinds and Japanese Yen appreciation? Who knows, but according to the charts we may see a swing lower on USD/JPY in the short-term. I wouldn’t mind going short here at market, but I think i’ll try to get a better price at 92.00. I have my stop above previous highs and I am targeting the rising trendline and previous lows. Here’s what I’m going to do:
Remember to never risk more than 1% of a trading account on any single trade.
I may keep my trade open if the second target is hit and target the previous lows around 87.10, so stay tuned for adjustments. There is event risk this week Housing and inflation data from the US, so be on the watch for that. Be safe and good trading!