Dollar Yen Trade Alert: The Japanese Stimulus Impact on JPY

Abe’s grand stimulus is expected to be revealed to the market. The much anticipated stimulus has grabbed the attention of many investors across the globe. Last week the Bank of Japan (BOJ) chose not to slash rates but did double the ETF purchasing to JPY 6 trillion.

We have emailed last week the major price action in JPY pairs and crosses is expected this week. We have discovered potential entries in AUDJPY, GBPJPY and USDJPY.  We decided to dismiss Aussie yen due to the upcoming RBA meeting and GBPJPY as the required stop is larger than Dollar yen.

USDJPY Daily Chart

Please click on the chart to enlarge:

USDJPY Daily Chart 01/08/16

USDJPY Daily Chart 01/08/16

The first concern is that we assume most of the market is long, which creates room for a stop hunt. Nevertheless, we are still opting for the signal.  Potential for reversed Head-And-Shoulders (H&S) is noted. It may appear the initial target is 107.60, however, after analyzing the 4hr chart we suspect the uptrend will be short-lived, possibly due to a temporary spike. On the weekly chart we are still in a downtrend, we are attempting to capitalize over a brief spike, possibly triggered by the market’s reaction to the stimulus when it is revealed by Abe.

All we know is that the stimulus is expected to be larger than JPY 28 trillion.

USDJPY Trade Alert

Please click on the chart to enlarge:

USDJPY Daily Chart II 01/08/16

USDJPY Daily Chart II 01/08/16

USDJPY long at market price (102.40)
Take profit: 103.98
Protective stop: 101.58
Risk Ratio (RR): 1 : 2 (approx.)
Estimated duration: 4 days

Note: It is not the best risk ratio but we are still opting for the trade as we are expecting a single spike to trigger the take profit.

02/08/16 UPDATE: USDJPY spiked to 102.80 during the Asian session, far less than what we have anticipated.  Japan’s stimulus strengthened the yen, however, it was heavy USD selling that forced heavy selling in USDJPY, triggering the protective stop loss order.

GBPJPY Trade Alert

USDJPY was sold due to a strong yen as Japan introduced a fiscal policy rather than a monetary policy. However, it is the strong USD weakness that triggered heavier selling in USDJPY as opposed to other crosses such as ADUJPY and GBPJPY.

 We will be as transparent as possible, this trade could drift in a drawdown until Thursday. What we are counting on aside the technical entry is traders cutting their GBP exposure before Thursday, which should support GBP. This is the only trade we will be holding today so our market exposure is fairly limited.

JPY strength may not be over but we expect GBPJPY to be more resilient. We attempted to long GBPCHF via entry orders but we were unsuccessful as the market did not trigger our entry. GBP gave several technical entries against other currencies, GBPJPY is the only cross where the gains were limited.

Please click on the chart to enlarge:

GBPJPY Daily Chart 02/08/16

GBPJPY Daily Chart 02/08/16

GBPJPY long at market price (134.55)
Take profit: 142.50
Protective stop: 132.40
Risk Ratio (RR): 1 : 4 (approx.)
Estimated duration: 21 days

Note: Please note it is a weekly entry although are displaying the daily chart. It is the tightest stop we can use.

GBPUSD Trading Strategy

There is a large consensus for a rate cut by the Bank of England (BOE). The market has fully priced in the potential rate, the trigger is likely to be the possibility of an increase to the QE.

GBPUSD Daily Chart

Please click on the chart to enlarge:

GBPUSD Daily Chart 03/08/16

GBPUSD Daily Chart 03/08/16

We have noted the break above 1.3275 in yesterday’s session. The recent weakness acts a re-test of the breached resistance, reducing the possibility of a false breakout. However, we find it difficult to believe we are  the only one who has noted the breakout. Stops are likely to be layered between 1.3070 – 1.3275. We can use a tighter stop rather than below 1.3070 but it means the corrective gains must begin in the Asian session.

As we are already holding a trade in GBPJPY we must determine if increasing the exposure is a wise idea. We will have to wait for the daily close to determine how we wish to proceed.

GBPUSD Trade Alert

We decided to opt for GBPUSD. There is a mild risk in doing so as our exposure to GBP is increased but we are relying on the daily chart. We should be able to withstand any attempts to flush weak stops.

Please click on the chart to enlarge:

GBPUSD Daily Chart II 03/08/16

GBPUSD Daily Chart II 03/08/16

GBPUSD long at market price (1.3323)
Take profit: 1.3770
Protective stop: 1.3210
Risk Ratio (RR): 1 : 4 (approx.)
Estimated duration: 7 days

Note: The recent gains increase the possibility for a re-test of 1.3275, however, it is expected to be a fairly limited drawdown and not guaranteed to take place.

04/08/16 UPDATE: This a rare update but we have decided to shift the stop to 1.3199. We re-calculated the potential whipsaw reaction to the BOE monetary policy and we could be too close to the market.

The stop has widened by +11 pips. Only in extreme scenarios we widen the stop, this is a precautionary measure.

GBPUSD is trading at 1.3322 at the time of this writing.

07/08/16 UPDATE: The BOE initiated a new QE and slashed rates by 25bps as expected, however, the central bank downgraded the growth projections for 2017 by +1.5%. The downgrade triggered heavy GBP selling, triggering the protective stop loss order of both trades. Despite GBP recent recovery we chose not to re-enter as we are firmly against re-entering trades that were stopped out.

Dollar Yen Trade Alert: The Japanese Stimulus Impact on JPY

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Dollar Yen Trade Alert: The Japanese Stimulus Impact on JPY

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Dollar Yen Trade Alert: The Japanese Stimulus Impact on JPY