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Trade Closed: 2007-11-30 14:07

Looks like our trade stopped out as traders return to risk by buying back into higher yielding assets and carry trades.

Total: -90 pips

We will probably see equities and USD/JPY continue to rally ahead of the Fed Interest Rate decision coming scheduled on Dec. 11th. The overall debate until then will be a 25 basis point cut or 50 basis point cut from the FOMC. Look for the overall currency markets to remain choppy until then.

So, we didn’t end the month on a good note, but we still ended up positive with +158 pips! Have a great weekend eveyone!

Trade Idea: 2007-11-28 19:24

PoD Chart

Greetings everyone! It looks like USD/JPY is giving us a nice setup for a swing trade after its counter trend correction today.

On the 4hr chart, it looks like sellers won out for now as we see an “almost” perfect doji candle at the psychologically significant level at 110.00. This also happens to line up with the 61% fibonacci retracement on the move from 111.71 to 107.19. One final confirmation is the stochastic oscillator in the overbought territory. This move may be overdone and we may see a return to the downtrend.

Now, my only concern for taking a short is the strong correlation the Yen has with US equities. We’ve seen a rally in US equities on speculation there will be another rate cut coming soon in the US, especially after Federal Reserve Vice Chairman Donald Kohn’s comments today supported such speculation. This brought risk hungry traders back into equities and into the carry trade.

In my view, I think the recent rally is just a correction. I think the outlook of a economic slowdown will continue to weigh on the markets and that risk aversion will return. So, I will short here with a wide stop and hope the trend lower will continue.

Short USD/JPY at market (109.95), stop at 110.85, pt1 at 109.25, pt2 at 108.50

Remember to never risk more than 1% of your account on any single trade. Adjust position sizes accordingly!

Stay tuned, good luck and good trading!

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.