Playing the USD/JPY Downtrend – Closed Trade

Closed Trade: 2012-09-06 17:00 ET

Good afternoon! It looks like the market got an appetite for risk pretty quickly with today’s events; not good for the Japanese Yen. Check out how the ECB press conference and surprise ADP data affected USD/JPY today.

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

PCDPOD20120903.review.png

Yup, it was a 1-2 knockout punch to my USD/JPY trade thanks to today’s market events. First, we saw a surprise with the ADP Employment report as it came out with a 201K read vs. the 140K forecast. The weekly US initial claims also an upbeat note as it came in lower than expectations at 365K vs. 370K forecast/377K previous month.

The big banger catalyst, though, was the ECB announcement of their new bond-buying program. This sparked a broad increase in risk appetite, even though it was rumored and expected beforehand. Regardless, traders quickly got sold out of safe havens and bought back into riskier assets. In the case of USD/JPY, it was a strong pop higher, taking my position to its stop loss at 78.90.

Total: -45 pips/ -1.0% loss

My line of thinking before this morning’s events was that because the rumors of an unlimited program came out on Wednesday and pushed up the markets, the actual event wouldn’t have a huge impact on the markets today (maybe even a sell-off on the “buy-the-rumor, sell-the-news” phenomenon). Well, I was pretty wrong there and probably wrong as well to hold on all the way to my stop loss level. If there was one thing I would do differently was to just pull out of the trade as the market turned against me after the events.

In retrospect, it was probably too early to play my QE3 thesis on the US Dollar, but the technical setup looked too good to pass up. I still think we’ll see US Dollar weakness, but most likely not until we get the announcement from the Fed. For now, it’s risk-on as the ECB news should influence sentiment probably into next week.

For now, I’ll keep an eye out for day trades and when we do see when the Fed does at the next Fed meeting (Sept. 13, 14:00 ET), then I’ll switch back to swing trader mode. Until then, thanks for checking out my blog, good luck and good trading!

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Trade Idea: 2012-09-03 17:18 ET

Good afternoon forex friends! After a refreshing break from the markets, I’m back and I’m looking to jump in on a technical play on USD/JPY. Will the trend lower be my friend?

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

PCDPOD20120903.png

I’ve got the 60 minute chart up of USD/JPY above, and we can see that sellers took over when the 78.80 area failed to break higher. We may continue to see more movement down to 78.00, which is a strong area of interest that held as support/resistance as recent as late July. I especially like a continuation of USD/JPY weakness after Fed Chairman Bernanke made a case for more QE on Friday. This effectively leaves the Japanese Yen as the only major “safe haven” currency–at least with no major news expected from Japan in the short-term. Also, fears of global slowdown after recent weak economic data favors more capital flowing into Japan’s capital markets.

So, I’m looking to short this pair on a retracement back up to the minor support area that held well last week and target the major support area mentioned earlier. My stop will be above just above last week’s high. Here’s what I am going to do:

Short USD/JPY at 78.45, stop at 78.90, profit target at 78.00

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

This trade structure gives me a potential reward-to-risk of 1:1, and given the potential volatility we’ll see this week as traders come back I think it’s a realistic R:R to go for. As always, stay tuned by following me on Twitter and Facebook for updates, adjustments, and market observations.

Thanks for checking out my blog…good luck and good trading!

3 comments

  1. jamessheppard

    Liking the short fundamentally just a bit worried about the trend lines which look quite strong. As you have a small pt i think should be ok.

    Reply
  2. Peter Soung-Hun Baik

    I take it this order triggered?….I think you’re right on the downtrend….unfortunately I’m long and stubbornly won’t take my losses yet….sigh….

    Reply
    • Pipcrawlerpipcrawler Post author

      Yes it did trigger, but USD/JPY isn’t moving much. If you think I’m right then why are you long? haha What ever your trading method says you should do, you should probably just go with it rather than whatever I’m saying because it’s a well tested and practiced method, right? Good luck Peter!

      Reply

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