Pick of the Day: USD/JPY – Close Trade

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.

So, another small hit today, but that’s all a part of the game. Can’t win them all, but I can control my risk! Stay tuned as I look for new opportunities in Cable and EUR/USD!

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Trade Idea: 2009-02-16 17:52

PoD Chart

Good evening! Back to another week of trading and it looks like we’ve got a potential reversal in USD/JPY on the four hour chart. Check it!

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:

Short USD/JPY at 92.00, stop at 93.80, pt1 at 90.20, pt2 at 88.40

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!

  • bilal_shirazi

    Anyone else in?

  • moneeeb

    I am in this trade, it hit my resistance @ 92.400

  • fed

    I am in it since friday, it is not moving at all.

  • forexlah

    I’m in. Let’s see what will happen in 2 days. :)

  • bilal_shirazi

    Anyone else in?

  • aokmanga

    I’m in with 1.9245

  • moneeeb

    I am in this trade, it hit my resistance @ 92.400

  • fed

    I am in it since friday, it is not moving at all.

  • forexlah

    I’m in. Let’s see what will happen in 2 days. :)

  • bilal_shirazi

    Out of curiosity ho many of you follow the 1% recommendation. Anyways, good luck to all

  • aokmanga

    I’m in with 1.9245

  • forexlah

    Just closed my position for $400+ profit. Though I made a stupid mistake today.

    Thanks for this recommendation. I’ll follow this blog from now on religiously. :)

  • bilal_shirazi

    Out of curiosity ho many of you follow the 1% recommendation. Anyways, good luck to all

  • forexlah

    Just closed my position for $400+ profit. Though I made a stupid mistake today.

    Thanks for this recommendation. I’ll follow this blog from now on religiously. :)

  • ffaspector

    I was already in a similar position. Wonder how he’s feeling now….

  • bilal_shirazi

    Pipcrawler, do you have any commentary this far?

  • ffaspector

    I was already in a similar position. Wonder how he’s feeling now….

  • bilal_shirazi

    Pipcrawler, do you have any commentary this far?

  • Gusmeran

    I was alreday in @ 92.10…
    hit my stop @ 92.90 (though 92.70 resistance was good!)

    well, next time…

  • Gusmeran

    I was alreday in @ 92.10…
    hit my stop @ 92.90 (though 92.70 resistance was good!)

    well, next time…

  • petaganayr

    I went long about 2 days ago at 92.53 it is at 93.73 right now.

    I think I’ll hold this position and TP around 94.60 or 95.00 (because it looks like it did a series of 3-wave move) and depending on US economic data, I might short it around 94.00 and ride it all the way down to 87.00.

    What do you guys think?

  • petaganayr

    I went long about 2 days ago at 92.53 it is at 93.73 right now.

    I think I’ll hold this position and TP around 94.60 or 95.00 (because it looks like it did a series of 3-wave move) and depending on US economic data, I might short it around 94.00 and ride it all the way down to 87.00.

    What do you guys think?

  • mykungfuisgood

    So this is very much after the fact, but I was curious why you chose your stoploss to be at 93.80

    When I was looking at this trade I was in this trade I was eyeing the 92.50 resistance, any reason why you didn’t choose that?

    Cheers.

  • mykungfuisgood

    So this is very much after the fact, but I was curious why you chose your stoploss to be at 93.80

    When I was looking at this trade I was in this trade I was eyeing the 92.50 resistance, any reason why you didn’t choose that?

    Cheers.

  • Pipcrawler

    Thanks for the comments everyone! mykungfuisgood – my stop was based on the Average Daily True Range. My thoughts is that if a market moves way beyond that in a single day, then there is a shift in sentiment – at least in the short term. ATR (20) on USD/JPY is around 180 pips. Apparently, sentiment did shift as the Japanese economic weakeness took center stage and everyone jumped on it. I underestimated the effect of that news and USD/JPY rallied. And that’s why we have stops – to take us out of trades when our original thesis for the trade is invalidated. Got to cut your loss quick and move on to live and trade another day…right???

  • Pipcrawler

    Thanks for the comments everyone! mykungfuisgood – my stop was based on the Average Daily True Range. My thoughts is that if a market moves way beyond that in a single day, then there is a shift in sentiment – at least in the short term. ATR (20) on USD/JPY is around 180 pips. Apparently, sentiment did shift as the Japanese economic weakeness took center stage and everyone jumped on it. I underestimated the effect of that news and USD/JPY rallied. And that’s why we have stops – to take us out of trades when our original thesis for the trade is invalidated. Got to cut your loss quick and move on to live and trade another day…right???

  • mykungfuisgood

    Thank you very much for the answer pipcrawler.

  • mykungfuisgood

    Thank you very much for the answer pipcrawler.