A Setup to Short USDJPY
A week ago, the USDJPY popped above 100 as Shinzo Abe’s Liberal Democratic Party gained control of both houses of Japan’s parliament. If you focused on the press’ narrative, you’d assume the result would be a weaker yen, as internal opposition to Abenomics had all but faded away.
However, the charts told a different story. In the month prior to the LDP’s victory, the Nikkei gained about 12%, and USDJPY rallied from below 95 to above 100. The charts were telling us that the news was already priced in.
Just one week after the LDP’s victory, USDJPY was rocked overnight when the Nikkei 225 fell to a one-month low. The weakness in Japanese stocks was lead by exporters, which are sensitive to a strengthening yen. USDJPY also reached a one-month low overnight.
Technically, the USDJPY currency pair has broken down from an intraday (hourly) symmetrical triangle. The plunge from the 100.44 high to below 98 has been dramatic; that’s one reason why I’m expecting more downside. Should strength materialize, my plan is to short a USDJPY rally at the 98.60/98.70 area. That is the approximate location of the 38.2% Fibonacci retracement and the 50-hour moving average (highlighted yellow):
Place the stop above the rising blue trendline, which is currently located at 99.70. The target area is just above 95, the approximate location of a rising trendline that is visible on the daily chart. In the daily timeframe, the USDJPY remains within a larger symmetrical triangle:
Here’s Abe’s problem; the LDP’s political victory within Japan changes nothing outside of Japan. The loss of the International Monetary Fund’s (IMF) support is what really short-circuited the USDJPY rally. It wouldn’t matter if the LDP controlled every seat in parliament, Abe’s real problem lies beyond Japan’s borders.
About Ed Ponsi
Ed Ponsi has made over 100 appearances on CNBC, and has taught sold-out classes in New York, London, Singapore, Dubai, and other cities across the globe. He is well known his entertaining and informative analysis of the currency, commodities, and equities markets. Ed is the Managing Director of Barchetta Capital Management LLC, an NFA registered Commodity Trading Advisor.
An experienced professional trader, Ed has advised hedge funds, institutional traders and individuals. He has been profiled in magazines such as “Technical Analysis of Stocks and Commodities” and “Traders Journal”.
- See more at: http://www.forexnews.com/blog/2013/07/29/top-trade-idea-for-july-29th-2013-usdjpy/#sthash.JSUIwXme.dpuf
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