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Wednesday, April 14, 2021

Chart Of The Day: The Return Of The Japanese Yen

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It’s certainly interesting times for market participants. Multiple, unprecedented phenomena have recently become reality.

Consider a few themes: negative or near-zero interest rates; sub-zero oil prices; the worst global pandemic in more than a century; and because of lockdowns and massive unemployment associated with the coronavirus pandemic, US debt so ponderous it’s difficult to see how it will ever be paid off.

No surprise then that many countries may wish to shift away from the current global reserve currency standard, the US dollar.

Indeed, the Dollar Index is down over 9% since its March high–which occurred at the same time that equities bottomed. However, it’s only 5% lower versus the Japanese yen over the same period. That’s less than half its decline against the euro.

Though the common currency is primed for a pullback, this could be when the yen puts in additional gains vs the USD.

USD/JPY Daily

USD/JPY Daily

The USD/JPY pair attempted to climb back into a descending triangle today. This happens when sellers outstrip buyers, shaping the upper leg of the triangle downward while keeping the bottom line flat.

However, that was unceremoniously rejected, producing a powerful shooting star–subject to a closing price. Still, from a technical perspective, this is the ideal entry for a short play against the dollar.

Conservative traders would wait on a short position for a closing price to lock in the shooting star, then for a secondary confirmation, where the price attempts to penetrate the pattern but overselling pushes it back down.

Moderate traders would wait for today’s close, then may wait for the shooting star’s retest. They’d probably enter if the price nears the triangle bottom, or even just the 106.00 whole number, for the better entry, at the expense of a secondary confirmation, as opposed to more conservative traders.

Aggressive traders would be content with a close that sealed in the shooting star and its implied bearish dynamics. They too might wait for a better entry price–in conjunction with his or her prepared trading plan.

Trade Sample – Moderate Short Position Setup

  • Entry: 106.00 – upon a rally after today’s close and its affect on the shooting star
  • Stop-Loss: 106.50 – above the shooting star
  • Risk: 50 pips
  • Target: 104.50 – above the July 31 low
  • Reward: 150 pips
  • Risk:Reward Ratio: 1:3
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