Learn To Trade Currency Overview 20th August
Focus on the US Dollar vs. the Japanese Yen (USD/JPY)
The USD/JPY has trended gradually lower since May. This has been partly in response to the choppy volatility seen in risk trades since that period and the steadily worsening of the macro-economic outlook of the US, which has resulted in a broad downtrend in the USD against low yielding currencies.
Thoughts from the trading floor
The USD/JPY is currently trading around the 85.00 mark. This low coincides with the lows made last year in November. Thus technically, it may be forming a potential double bottom pattern. However, the failure to make a decisive bounce from this mark should trouble the bulls. A firm break and close above the 86.00 handle will be required within the coming 2/3 days in order to prevent a rout of those long leaning on the 84.80-85.00 level. If the market is able to break below here, it targets the multi-decade lows at 79.92. Suffice to say, there will be a lot of interest around these levels as a bounce from here followed by a yearly close above the 100.00 mark may be the catalyst for a move to the 125.00 handle over the course of the next year or two.
A strong Yen is seen as a major drag for Japanese exporters, the major industry of the country. Therefore sharp rises in the currency tends to brew up speculation in the market of possible intervention by the Japanese government to weaken the currency. With the market currently sitting around major lows, the chatter has increased steadily over the past days causing some intraday volatility in the USD/JPY. The Japanese Govt. has previously acted to stem the rise in the Yen and therefore this cannot be ruled out. Although we have already seen this year, with the Swiss Franc, government intervention failed to stem the medium term rise in that currency despite the sharp short term moves seen in the aftermath. Thus any long trades placed around the 85.00 to take advantage of possible intervention shouldn’t be expected to be a major medium term game changer for the market. In fact intervention around these levels may hasten the potential for a move to the multi-decade low at the 79.90 level.
Bull View
The bulls will look for a potential double bottom formation around the 84.80-85.00 level. A firm close above the 86.00 may result in an extension towards the 88.00 mark. If this fails, bulls will then look to re-establish positions around the 79.90 level. This level will be crucial for the very long term investors.
Bear View
The bears will look at the current downtrend and target the break of the 84.80 level. If bears can get the market through the 79.90 level, we may see some real panic in the markets and from the Japanese government.
Futex View
We favour the bulls. On the medium to longer term basis markets have a tendency to over-extend. A short-term bounce from the current level to the 88.00 in the coming 2 weeks cannot be ruled out. Also, considering that the market has been on a multiyear downtrend, we would favour attempting longs around the 79.90 level for a long term bet that the market may rise over the coming year or two towards the 100.00 value area.
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