Swing Long on USD/JPY – Trade Closed

Trade Closed: 2013-02-26 3:30 ET

You know how I always say, “anything can happen in the currency markets?” Well, we saw a good example of that yesterday as the Italian elections caused massive moves in the global financial market–and it wasn’t a good thing for my USD/JPY trade.

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

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The results of the Italian elections pointed to a hung parliament, which means a high probability of political instability and policy indecision in Italy for quite some time. This spooked the markets big time, obviously creating a huge selloff of the euro against the other major currencies. The biggest move amongst the majors was the EUR/JPY, which moved over 600+ pips during the US session. This had a derivative effect of traders buying back their Yen shorts big time across the board.

On the 60 minute chart above, we can see how this affected USD/JPY. The pair essentially dropped in favor of the Yen by about 300 pips, way beyond its normal behavior and volatility patterns. My USD/JPY long order was triggered at 93.55 and within the next couple of hours, I was stopped out by my stop limit order at 92.60.

Total: -95 pips/ -0.50% loss

Thank goodness for risk management and proper position sizing because that could have been a doozy to my trading account!

In retrospect, I’m not beating up myself on this one as I was taken out by an event that was totally unrelated to the US or Japan, and sometimes that just happens in the currency markets. Overall, I think the technical setup and fundamental thesis was good; I’d definitely take it again in the future, just as long as there isn’t an Italian election around the corner. ;)

So, a small hit to my account to start the week off, but it’s only Tuesday folks–lots of action left in the market with plenty of potential catalysts ahead of us. Stay tuned for observations and new ideas by following me on Twitter and Facebook. Good luck and good trading!

Entry Adjustment: 2013-02-25 6:15 ET

Good morning! It looks like Yen weakness is still in full effect as we can see from the big weekend gap in USD/JPY. Given the new information from both the Fed and the Bank of Japan in the last week, I’m still bullish on the pair, but I’ll have to adjust my entry.

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As mentioned here by my boy Forex Gump, the latest FOMC meeting minutes revealed that the Fed sees positive signs from the labor market recently, which has some market speculators thinking we may see them gradually ease away from QE sooner rather than later. Fed President Ben Bernanke is set to present his semiannual Monetary Policy Report to the House Financial Services Committee. It’s likely he’ll re-iterate the same sentiment from the latest FOMC meeting minutes, which could help support the Greenback this week.

On the other side of the pond, Japan PM Shinzo Abe is expected to nominate ADB chief Kuroda as the next BOJ chief. This expectation had Yen bears take action as he called for an inflation target for Japan more than 10 years ago, as well as saying that additional easing can be justified for 2013 according to Bloomberg. Yen selling sentiment is still strong, so I think continued selling will most likely be the theme for the Yen until the end of the month.

Technically, we saw a big weekend gap in Yen pairs, and if it does close, we could see buying support for USD/JPY at the area of strong interest highlighted in the chart above. And since the likelihood of the market reaching my current open orders is very low, I’ve decided to cancel my previous orders to go long USD/JPY at 92.50 and good long near the gap close. Here’s what I’m going to do now:

Long USD/JPY at 93.55, stop at 92.60, max profit target at 95.00

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

This new trade structure starts me out with a potential return-on-risk of about 1.52:1, and I will continue to only risk 0.50% of my account. Of course, if the rally looks strong, I’ll adjust my plan to maximize my profits by trailing my stop and adding to my position if it goes my way.

A lot can happen this week, and if the story changes I’ll be sure to adapt to it. Stay tuned by following me on Twitter and Facebook.

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

Trade Idea: 2013-02-19 05:36 ET

Good morning Forex friends! With some potentially hard hitting events coming out this week, I’ve decided to get setup for a longer-term swing on USD/JPY this week. Can get a little piece of the uptrend?

USD/JPY Swing Long

I’d like to go long the pair on both continued Yen weakness thanks to Japan’s aggressive monetary policies, and on forecasts we’ll see US Dollar positive from the US this week.

First, we all know that while Japan didn’t increase their stimulus program last week, it’s still a hefty 101 trillion JPY program that will stay steady until the end of 2013. We also saw weakness in Japan in Q4 of 2012, so there’s speculation of possibly more if we don’t see the economic improvement that the government hopes for.

On the other side of the coin, the US has been experiencing positive economic data, and this week is forecasted to show Greenback positive data as well with potentially higher US inflation data, decreasing initial jobless claims, and a better read from the Philly Fed Manufacturing Index.

Now, this week’s forex calendar has quite a few events to keep traders busy. The most notable are several central bank meeting minutes (including the Fed) and potentially significant economic data out of the eurozone. The former may not surprise us with any new insights, but they may give us a hint on when we may possibly see an end to easy monetary policy. A surprise change in rhetoric could definitely spark some action.

And this week’s eurozone data (PMI’s) may either confirm or conflict the recent weakness shown by last week’s quarterly GDP reports; either way it should be a catalyst for general risk sentiment as Europe continues to be one of the main drivers of price action and market sentiment.

So, for my USD/JPY long, I’m going to be a bit conservative with my entry by waiting for a retest of the bottom of the range formed between 92.50 – 94.50. My stop will be about half of the average weekly volatility range (which takes me below the consolidation area), and my target will be previous swing highs. Here’s what I am going to do:

Long USD/JPY at 92.50, stop at 91.60, profit target at 94.30

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

With so many potential market movers this week, I look to only risk 0.50% of my account for a potential 2:1 return-on-risk. As always, you never know what may surprise us in the forex market, so if sentiment changes I’ll change as fast as I can with it. Stay tuned to my thoughts and adjustments by following me on Twitter and Facebook. Thanks for checking out my blog–good luck and good trading!

1 comment

  1. Pranav

    Hey Dude,

    Nice post. I longed USD/JPY @ 91.95 and I hope it raises as I see USD to be stronger at the moment when compared to JPY…. Really praying to get lucky :( … This is my first day to trade Forex ( i was a commodities trader earlier )

    Reply

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