Pullback on the USD/JPY Uptrend? – Trade Closed

Trade Closed: 2013-03-18 3:55 ET

Once again, a European event takes me out of my USD/JPY trade! Thanks to an surprising, unprecedented bailout plan for the small island nation of Cyprus, we saw a massive move in the global markets as soon as they opened in Asia.

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

This past weekend, EU finance ministers met to discuss the bailout terms for Cyprus. Going into the event, no one (myself included) thought this country of a little over one million people and less than half of one percent of all European bank deposits would spark a market moving event–boy were we wrong!

For this controversial bailout, the plan is to apply a one-time levy on all bank deposits: 9.9 percent on accounts with over 100K euros, 6.75 percent on account with less. The plan, if passed, is projected to raise about 5.8B euros for emergency funds.

This is a pretty huge deal as never before were depositor funds touched for a bailout to pass. If this is seen through, it could set the precedent for similar requirements for future bailouts. Needless to say, not a big confidence booster for the financial system.

This of course, had a very negative affect on the markets at the open of this week’s trading.

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Again, I didn’t think the Cyprus deal would have a big effect on the markets, so I left my orders to buy USD/JPY at 95.00 open over the weekend. I felt I had plenty of breathing room as USD/JPY closed just under 95.50 on Friday. But as soon as the market opened, my orders to buy were triggered at 95.00, and quickly soon after, my position was closed out at 94.00 as USD/JPY fell all the way to 93.57 right off the bat.

Total: -100 pips/ -0.50% loss

This trade was a good reminder that anything can happen in the market. Also, unless you have a position trade on (which this kinda was), it’s a good idea to close positions and orders into the weekend. I think my only mistake on this trade was underestimating any kind of European bailout events.

Overall, I still think shorting the Yen is a good longer term trade, but for now, it might be a good idea to avoid that idea until the Cyprus bailout story unfolds and works it’s way through the markets.

Not a good start to the week, but thanks to risk management, I take only a small hit and I live to trade another day. For now, I’ll do my weekly prep and see what opportunities may be out there in the current environment. Stay tuned by following me on Twitter and Facebook!

Good luck and trade safe!

Trade Idea: 2013-03-11 8:50 ET

Good morning forex friends! The Japanese Yen has been on quite a run for some time now, and I still think it has a bit more to go. Will we get another pull back this week on USD/JPY to jump in the trend?

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Fundamentally, as every currency trader on the planet knows by now, the new Japanese government regime has been on a mission to fight deflation, hopefully reaching an inflation target of 2%. Needless to say, traders have not been kind to the Yen since Shinzo Abe took over in December. And with the new Bank of Japan Governor Haruhiko Kuroda set to take over April 4, that mission may kick into overdrive and push the Yen down further.

On the other side of the pond, US data has been positive, especially with Non-Farm Payrolls smashing expectations last week. With positive data on it side, and still maintaining its “reserve currency” status, things have been looking good for Greenback bulls lately. So right now, going long USD/JPY looks like a good play.

Now, I’m one to try to get into a trade at a price better than market, but pull backs on the Yen sell off have been mostly shallow since December (with the exception of the reaction to the Italian elections). This week may be different as the pair looks a bit overbought on the higher timefames; the stochastic indicator is showing potentially overbought conditions on the 240 min, daily, and weekly charts. Plus, I think we may get our first bit of bad US data in a while with this week’s US retail sales report. The trend for the report has been lower over the last six releases, and while it’s not usually a market mover, a weak reading may have a bigger-than-usual reaction after such a strong jobs report.

That’s the scenario I look to play this week, and if does play out in that way and brings USD/JPY to the fibonacci retracement area, we may see USD/JPY bulls jump in around there. Here’s what I look to do:

Long USD/JPY at 95.00, stop at 94.00, max profit target 100.00

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

I’ve got a big profit target on this (which means I may be in it for a while) and for this trade, I look to scale in and trail my stop every 100 pips. I’ll start with a small position, risking only 0.50% of my account, and if all works perfectly (which it never does) my max potential reward-to-risk return is 15:1. Of course, if the story changes then I’ll adjust my position quickly. Stay tuned to my market thoughts and adjustments by following me on Twitter and Facebook.

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

  • Bijoymj

    Planning to Enter @ 94.00. Sorry, at your stop loss.

    • pipcrawler

      No need to apologize haha! We all place orders where we feel it best meets our goals. And that’s what makes a market. Good luck!

  • Mike Schuil

    Hi Pipcrawler, I’m new to this game so really appreciate the detail you post. What would change your mind about this trade? Anything / time period you’re looking out for?
    Thanks

    • pipcrawler

      Hey Mike…I was stopped out of this trade, but I still like it for a medium-to-long term position trade. My views haven’t changed until the stories have changed in the US and Japan, but the market may be choppy with this week’s events.

      • Mike Schuil

        Ok thanks, much appreciated

  • illuminat18n

    hi pipcrawler, why i cannot see any price below 94.30 in any charts? how can your chart have price as low as 93.57?

    thanks

    • pipcrawler

      Remember that spot forex is not a centralized market, so data feeds may not always be exactly the same between each broker/service provider. I noticed the same thing as you with my usual charts, so I used Bloomberg charts this time to show that somewhere in the interbank market, USD/JPY did move that low. It’s very, very rare that this happens and usually only during unprecedented events like the Cyprus bailout situation.

  • Medina Blake

    hi pip crawler, im new to trading and have been practicing on my demo account for about a month now. I have a EA that i have written and am fine tuning it to scalp pips under certain conditions. I have figured out that news on the economic calender affects the market but where do i go to find out news like this? i had 3 big losses today(not really like 1% of my account) on the EUR/USD and USD/JPY and had no clue as to why until i read this blog. Also i am trying to figure out how long to stay OUT of the market when bigger economic events happen because thats when my trading system stops working. Thanks!!!

    • pipcrawler

      You can find econcomic events in advanced using our forex calendar: http://www.babypips.com/tools/

      This should help you avoid those hard to predict, major events. Good luck!

  • Guest

  • disqus_5Ocphb1GUc

    hi pipcrawler , i didn’t really understand scientifically and economically why such an event can affect the USD in such a way…

    • pipcrawler

      Probably the first thing you need to understand about the markets and economics is that even though there are numbers involved, it is not an exact science like math or physics. Market movement’s most basic driver is supply and demand of market participants. Much of the time, that may be influenced by data like economic events, but almost as often is that it may be driven by additional factors like exposure to risk, portfolio balancing, M&A, etc. This makes the markets easy at times to trade, and at other times, well…you’ll probably want to pull your hair out 🙂 Understanding market behavior is a unique challenge that will take many, many years to understand. So, take your time in creating a trading framework that makes sense to you, and stay focused on being disciplined and following your processes.