BOJ Monetary Policy Trading Strategy: Up to the QE

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AUDJPY Trading Strategy

At the time of this writing it appears the market is unprepared for a QE expansion by the Bank of Japan (BOJ), which means many may be caught by surprise unless the pricing-in begins within the next 24 hours. One of the Japanese officials stated the BOJ should increase it QE by up to 10 trillion yen at its monetary policy meeting at the end of October.

Our preference would have been USDJPY but in light of the FOMC statement that spark a USD rally in the Forex market we cannot consider a long trade in the pair without exercising a large stop loss order.

USDJPY Daily Chart

Please click on the chart to enlarge:

USDJPY Daily Chart 28/10/15

USDJPY Daily Chart 28/10/15

Out of most of JPY pairs and crosses the possible candidates are AUDJPY and EURJPY. In light of the European Central Bank (ECB) threats of a lower deposit rate we prefer avoiding EURJPY. Euro Aussie characteristics differ to Euro yen. It also appears the Reserve Bank of New Zealand (RBNZ) warned it may cut rates should the New Zealand Dollar (NZD) continue to rise in the Forex market. The RBNZ raised rates in the past to prevent a housing bubble in New Zealand and chose to intervene in the Forex market in order to weaken NZD against a basket of currencies. The RBNZ adopted a stealth intervention mode (similar to the BOJ several years ago) until it openly stated it was intervening in the Forex market. Although this is irrelevant to JPY we will keep a close eye on NZD pairs and crosses in November 2015.

AUDJPY Daily Chart

Please click on the chart to enlarge:

AUDJPY Daily Chart 28/10/15

AUDJPY Daily Chart 28/10/15

The lower support line is inline with breached neckline of the reversed Head-And-Shoulders (H&S), providing a neat entry into the Aussie yen with a stop below the support.  The resistance is questionable as an additional re-test is required but we decided to paint it on the daily chart. Our target is based at the higher resistance as we are anticipating the BOJ to expand or hint a QE expansion. AUDJPY may post another re-test 85.60 before reversing higher but we cannot guarantee such a re-test will take place. The main risk to this strategy is the PBOC should the central bank devalue the Yuan at the fixing at 01:15am GMT. No action was taken so far so it is a risk we are willing to take.

If the PBOC does act (which will be a great surprise) our protective stop will be triggered in matter of seconds. It is essential for us to emphasize the risks we are willing to take.

AUDJPY Trade Alert Details

AUDJPY long at market price (86.06)
Take profit: 91.70
Protective stop: 84.68
Risk Ratio (RR): 1 : 4.5 (approx.)
Estimated duration: 7 days

Note: The trend may be determined within the next 48 hours.

30/10/15 UPDATE: As the BOJ is no longer the fundamental trigger for gains we are anticipating in AUDJPY, China Manufacturing data is due over the weekend. A positive figure (above 50.0) is likely to trigger a bullish gap in AUDJPY when the market opens on Sunday night.

In order to conduct a healthy risk management we are closing 10% of the long trade at market price, 86.06.

03/11/15 UPDATE: AUDJPY is trading at 86.53 at the time of this writing.

Please click on the chart to enlarge:

AUDJPY Daily Chart 03/11/15

AUDJPY Daily Chart 03/11/15

We are closing 20% of the long trade at market price and shift the protective stop to the entry ahead of the RBA monetary policy meeting.

03/11/15 UPDATE:  The shove lower in AUDJPY took out the protective stop loss order that was shifted to the entry before reversing higher. We have nevertheless finished the trade with a profit and enjoyed the positive interest at the rollover.

Please click on the chart to enlarge:

AUDJPY 4hr Chart 03/11/15

AUDJPY 4hr Chart 03/11/15

BOJ Monetary Policy Trading Strategy: Up to the QE
As AUDJPY long trade is closed this page can now be accessed by all traders. Open trades are restricted to members only. We have been providing trade alerts in the Forex market since May 2014.
BOJ Monetary Policy Trading Strategy: Up to the QE

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BOJ Monetary Policy Trading Strategy: Up to the QE

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BOJ Monetary Policy Trading Strategy: Up to the QE