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Good morning! Despite weakening Japanese data, the Yen rallied over the past few sessions on risk-off sentiment thanks to weakening global economic data. This was not good for my technical long.

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

The tone in the markets has decidedly turned negative over the past few sessions thanks to a renewed focus on weakening global economic data and outlook, especially in Europe (the European Commission forecasts a deepening and weak recession into 2013).

It doesn’t help that Greece is also back in the headlines as riots break out over the passing of further austerity measures to lock in their next bailout. Finally, risk aversion was also sparked by investors speculating that Obama’s tax policies and the fiscal cliff will be unfavorable towards business the economy.

So, everything above meant a strong sell-off in the EUR/JPY, translating into a USD/JPY hit on risk aversion as well. On the chart above, we can see that my buy area (79.75) did hold and was looking to reverse, at least until focus started shifting towards traders taking off risk. The rising trendline has been broken and my trade was stopped out for a small loss at 79.45.

Total: -30 pips/ -0.50% loss

In retrospect, I wasn’t expecting such a big risk-off turn after the election because really, what did the election really change? Of course, the market always comes up with a new surprise and the refocus on Europe was a surprise to me as I feel that even though it’s still bad there, we’ve gotten past the worst of it. It looks like I’m wrong.

Overall, a great technical setup, but as usual with the markets, anything can come out of the blue or traders can quickly focus on something else. That’s why I kept my position very small, and I’m glad I did.

Well, being that it’s Friday, I think that’s it for me for the week. Time to reflect, relax, and get refocused for next week. Thanks for checking out my blog and have a great weekend!

Trade Idea: 2012-11-07 17:24 ET

Good afternoon forex friends! Now that we’ve gotten past the US election event risk, I feel I can jump in the Fib area I’ve been watching on USD/JPY.

I’m taking a pure technical play that I pointed out at the beginning of the week now that the US election event risk is past us. I especially like it now as the major psychological area of 80.00 held strong as support against the volatility created by not only the US elections but on weak European data (worse-than-expected Retail Sales and German Industrial Production). We can also see that a divergence has formed on the 60-minute chart above, signaling a potential turn higher.

I will go long on a pullback to yesterday’s lows with a small position since this will be a short-term play and I believe this will give Yen bears another chance to jump in for a quick sell. My stop will be just below recent swing lows and I will target recent highs around the next minor psychological level. Here’s what I am going to do:

Long half position USD/JPY at 79.75 half position, stop at 79.45, max profit target at 80.40

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

Given this market structure, I have a potential return-on-risk of a bit over 2:1 with an account risk of 0.50%. Of course, if conditions change to really push risk into “off” mode, I’ll probably make a quick adjustment. Stay tuned!

Thanks for checking out my blog. 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.