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Taking a shot on USD/JPY after a big pickup in volatility in a downtrending market, and ahead of a top tier U.S. economic event. Check it out!

USD/JPY Downtrend Momentum

USD/JPY 1-Hour
USD/JPY 1-Hour

Greenback sentiment must’ve flipped with the new year because we’re seeing sellers hop on the U.S. dollar quickly to start 2019.

Which makes sense given the shift by traders on what the Federal Reserve may do with interest rates down the road (no longer hiking rates, maybe even rate cuts by 2020?), especially after fresh U.S. survey data shows an accelerated downshift in growth from the manufacturing sector today.

We’ve got the U.S. employment report tomorrow, which could show strength given today’s strong ADP private payrolls report, but I think if there is a bounce in the Greenback, it’ll be an opportunity to sell and play the bigger picture shift in the outlook on interest rate policy moves from the Fed.

To play the Greenback, I’ll be buying Japanese yen, which seems to be the flavor of the day given the global risk aversion sentiment sparked by weakening economic data around the world. We did see an insane move during at the Asia session open where the yen spike higher big time, but most yen pairs have bounced back to near pre-spike levels, making it much more comfortable for me to take this trade.

But with U.S. Non-Farm Payrolls up ahead, I’m going to go with a conservative setup in case we do see a pop higher if NFP comes in better-than-expected. My stop will be just a bit more than the weekly ATR and my target will be twice that given the pick up in volatility for a nice potential return-on-risk. Here’s what I’m doing for now:

Short half position USD/JPY at 108.70, max stop at 110.20, max target at 105.70

Again, I’ll be risking only 0.50% of my account and my potential max return-on-risk is about 2:1 but I’ll leave myself open to take profit quickly depending on how market drivers develop. I’m also open to jumping in at market if I don’t get my entry order triggered and sentiment strongly favors a bearish USD/JPY move.

Of course, with other major themes driving markets, additional top tier economic data releases, and fast developments happening in geopolitical news, I will not hesitate to adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on what happens and how the markets react.

Stay tuned and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.