Monday, March 21, 2011

Long-Term Yen Charts

For right now, the Yen intervention on Friday is still the dominant theme in currencies. In spite of all the talk and supposed massive involvement of the central banks,I do not think it was very successful. It remains to be seen if they will repeat it or simply let the markets sort it out and live with fear of another intervention. Currently we have other news that might overshadow the Yen story and that it Libya. Western countries started to bomb military targets there and it is unclear how currencies will react to that development.

I want to take a step back and forget the shifting fundamentals and what possible effect they could have. It is time to take a look at charts, trying to tune out the news. In case of the Japanese Yen, the USD-JPY is the chart to watch, because that is the center of attention. Last week this pair dropped to 76.12, which is the new all time low, undercutting even the extreme from 1995. Other major Yen pairs did not make new lows, so they have to analyzed from a different angle.

On this monthly chart we can see a new low reached last week, clearly below the previous all time low of 79.75. However, the last candlestick shows as a hammer - a bullish reversal candle. Since it is forming after a prolonged down trend and at new low, it increases chances for a corrective bounce in the USD-JPY. Not necessarily an all out reversal, but at least some kind of bullish move. Unfortunately, this time frame can not be used for a trade because the candlestick is not complete yet. It still could change dramatically before the month is over. Regardless, this chart provides a hint of bullishness, something to remember when looking at the weekly chart.

Here the last candlestick also formed a hammer, an extreme one at that, which reflects the dramatic increase in volatility last week. This hammer also has bullish message, because it formed in a technically correct place - at a new low after a long trend. We could also point out MACD divergences and other possibly bullish signs, but my focus is on the price action alone. Based on this chart, I want to go long the USD-JPY at the open, probably around 80.60 or so, with an objective of 85.00 and a stop just under last week's low. This gives about 1:1 R/R ratio. Because a weekly chart is used, this trade could take a long time to complete, so it will be a relatively small size transaction. If this position gets stopped out, I will probably place another buy immediately, depending on ho w the charts look like. Other Yen pairs could appreciate more, but as mentioned before, this chart is technically "better", more classic.

During the last few weeks I have been mostly selling the Australian Dollar, but now it could be time to buy it selectively, short term. The European currencies in particular rallied strongly against the AUD so a correction of some magnitude might be in order here. One example is the GBP-AUD, which climbed to as high as 1.6490. I want to sell it 1.6200, targeting 150 pips, using hourly chart.

Another currency which might be due for a correction is the NZD. It sold off a lot recently so it could have a bullish run soon, if only for a little while. In case of the NZD-CAD I would like to buy it on a breakout above 0.7250, seeking at least 100 pips. On the other hand, should the price move lower first, a bullish reversal candlestick around 0.7100 would also provide a buy signal. Just like every Sunday, the opening can provide trading opportunities in form of gaps. The best candidates are probably Yen and Dollar pairs. Have a great trading week!

Mike K.

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