Risk aversion and the Fed’s announcement of further quantitative easing have pushed USD/JPY down through support to the lowest level in 15 years. Japanese officials expressed concerns in the Asia-Pacific session about the rising yen but that has done nothing to slow the rally. Japanese Finance Minister Noda told reporters in Tokyo that recent moves in the yen have been “a little bit one-sided.” Meanwhile, Japanese Trade Minister Masayuki Naoshima said that deciding on FX interventions is difficult in an interview with Jiji Press. USD/JPY fell as low as 84.73 but was most recently down 47 pips to 84.97. The pair fell as low as 84.83 in November 2009 during the height of the credit crisis but USD/JPY hasn’t traded below since 1995. If the pair can close below 84.83, it will be an extremely bearish signal.

A reason for the weakness in USD/JPY is that U.S. growth in the second quarter may have been far worse than the 2.4% pace that was initially estimated by the Bureau of Economic Analysis. Two surveys private economists show they are expecting more than a full point of revisions. Bloomberg has just released a survey suggesting growth will be revised to 1.2% but it’s based on just four responses. Similarly, Dow Jones has a listed consensus at +1.3% (it’s unclear how many were surveyed). After four quarters of contraction, the U.S. economy grew at a pace of 1.6% in Q4 2009 followed by quarterly readings of 5.0%, 3.7% and the most-recent 2.4% rate. It appears that growth is stalling as government stimulus fades. With momentum clearly slowing, more questions will arise about the possibility of negative growth and recession. Slower-than-expected inventory builds are a large part of the downgrade. Today’s unexpectedly large U.S. trade deficit for June will also hurt. One notable market watcher is saying today that growth could be revised to as low as +0.5%.

We expect a bounce in USD/JPY in the immediate term but will be looking to sell. We will also sell on a close below 84.83 with an eventual taget of the all-time low at 79.90.

The strongest trend in the forex market at the moment is a falling USD and rising JPY. USD/JPY has been declining for nearly 11 weeks. This will be a big week in terms of U.S. data and there is talk that Japanese officials may intervene in the market is USD/JPY falls to 85.00. Watch for U.S. data on consumer confidence, durable goods, the beige book, GDP and the Chicago PMI. If the outlook continues to darken for the U.S. economy, look for this pair to continue sliding.

U.S. Federal Reserve Chairman Ben Bernanke roiled markets last week when he uttered that “the economic outlook remains unusually uncertain.” Markets take their cues from the Fed. Remember it was Bernanke’s comment in April 2009 about “green shoots” that helped prompt a huge turnaround in financial sentiment. Many traders stand by the old adage “don’t fight the Fed.” What Bernanke’s comment meant was that they are in data-watch mode, unsure of which direction the U.S. economy is headed. “We will continue to carefully assess ongoing financial and economic developments,” he said. His comments have focused the market’s attention on incoming U.S. economic data. As a result, the U.S. dollar is moving more than usual after economic data releases. We are seeing solid rallies against the yen on stronger economic data and deep slumps on soft figures. An “unusually uncertain” market is prone to big moves whenever there is a hint of clarity. Keep an eye out for signs that make the outlook more certain, for better or for worse.

Our trading in USD/JPY has been outstanding. We have picked several turning points in a row and we’re feeling good about calling another one.

The yen is the laggard (USD/JPY strength) after an election loss for the ruling Democratic Party of Japan ramped up worries about political instability.

The DPJ, which has been ruling for one year, was beaten badly and fell to 44 seats compared to 51 for the Liberal Democratic Party. Smaller parties have already ruled out any coalitions that would ensure the 56 seats needed for a majority. The Lower House is the power-base of Japanese politics but the loss will hamper policy-makers and could stall or kill a proposed sales tax increase that would help to put Japanese finances in order.

Frankly, we haven’t been that impressed with the sell-off in JPY despite the disastrous election result. We see the recent USD/JPY strength as a standard retracement and the 50% Fibonacci retracement is already providing resistance. The measured target of the double-bottom at 86.96 has been met.

There is some talk that the DPJ’s loss could help to boost the yen. Prime Minister Naoto Kan has in the past said he is in favour of intervening in the forex market to weaken the yen in order to boost exports. Due to the election loss, there is growing speculation that the DPJ may push for a leadership change in a September party election.

Technically, the more powerful indicators are pointing lower. Sell here.

We have been advocating short positions in USD/JPY all the way down but looking at today’s chart it’s clear that some caution is warranted. The pair is stabilizing and oversold conditions point to a rebound.

Today’s daily candle forms a bullish hammer reversal pattern. It also forms a double-bottom at 86.96, which was also the low last Wednesday. Further strengthening the case are a multitude of oversold signals, including the RSI, which is just a shade above 30.

A bullish retacement phase would be confirmed by a rally above resistance at 88.05 – 88.15. A reasonable retracement would be back up to 89.25. On the other hand, if we are unable to rally above resistance at 88.05 in the next day or two, we would expect a swift fall toward 0.8450.

USD/JPY has whipsawed over the past two sessions. General risk aversion and a strong USD 2-year note auction hurt the big dollar over the past day.

The former wedge formation has now clearly broken to the downside. We have been patient with this trade, waiting for a clear sell signal and fell like it has now arrived. We are below all the major moving averages and support is tenuous.

The big news in the day ahead will the FOMC interest rate decision at 2:15 p.m. ET. This is one of the least-anticipated decisions in recent years but it will still generate a market reaction. It’s virtually set in stone that the Fed will leave rates between 0 and 0.25% and keep the “extended period” language. The focus will be on the economic sentiment. With U.S. housing starts expected to fall by nearly 100K when the data is released later today, it’s safe to say that the Fed will have to take out the line that says housing starts “have edged up.” The employment assessment could also be downgraded and that would weigh on USD/JPY.

Dollar-yen has been a frustrating pair to trade recently. It can’t seem to find any strong direction. Just when it looks like it’s going to rally or plunge through support, it heads in the other direction. In essence, we have been trading between 89 and 95 since the start of the New Year.

In the longer-term, we expect the pair to eventually trend lower but at the moment, the trend is clearly sideways. In a sideways market, sometimes there are opportunities to put on a low risk trade that takes advantage of a short-term trend. That’s exactly what we see right now in USD/JPY.

This pair sold off on Friday from 93 to 91 but it has rebounded and consolidated in quiet trading today. This is a classic fibonacci retracement. The high earlier of 92.07 is precisely in “The Box” which is the zone between the 50% and 61.8% retracement. We think the spot rate, at 91.64 presents an excellent value on the short side.

Stochasics are showing an overbought signal on the daily and hourly charts with both in the process of rolling over. From a risk management perspective, the trade also presents good value. A stop at 92.15 is a 50 pip risk while on the downside, there is no significant support until 90.54.

No one is talking about USD/JPY because nothing much as happened in the pair over the past two weeks. What we see is a pair that is ready to make a big move.

For the past week USD/JPY has been locked in a 200 pip range between 90 and 92. The past three sessions have traced out doji stars and the week earlier also displayed a series of indecisive patterns.

It’s time for the market to make a decision on USD/JPY. We believe the trade is to buy on a break above 91.87 and sell on a fall below 89.91 but we also want to develop a bias.

To us, the downside looks more attractive for a short-term trade. The plunge on May 19 was the last major technical move. As such, we are noting that 91.87 (the high from that day) is a significant point of resistance. From a risk/reward perspective, we are only 50 pips from that high but a 135 pips from our most significant support level. That alone makes us baised to trade this from the short side. What’s more is that the slow stochastics appear ready to start turning over.

On the whole, we want to stay nimble with this pair. We think the next move is going to a big one and we are prepared to give up an early portion of the gains in order to ride the momentum. Keep a close eye on USD/JPY over the next 24 hours.

The U.S. dollar made strong gains against the yen on Monday but was unable to close above a key resistance line. The pair briefly traded at its highest since August but gave back a portion of its gains to close below of the April high of 94.69.

We remain long CAD/JPY but note that even though CAD was the leader in the forex market today and JPY was the laggard, the pair was also unable to break out.

In any case, the price action was short-term bullish. Friday’s slump in stocks and late-day plunge left us questioning our negative JPY bias. It also set up a bearish spinning top formation on the daily charts. Monday’s trading neutralized that though and painted a conditionally bullish picture.

The key in the day ahead remains the resistance at 94.69 stretching up to 94.78. If we see some stops blown out we will be encouraged. What makes us hesitate, however, is that Japan is on holiday until Thursday because of the Golden Week festivities. Holiday trading is treacherous and prime for false breakouts.

If the market fails to make a clear break above 95 before Thursday’s Asia-Pacific session we will be very cautious. The Golden Week is traditionally a down time for JPY so we are on guard.

The very immediate-term outlook for USD/JPY is clouded by the interet rate decision from the Federal Reserve and Bank of Japan. We see the potential for a pop but will be using it to sell strength.

The Fed decides at 2:15 p.m. ET on Tuesday while the Bank of Japan will announce interest rate decision about 10 hours later. 

Neither is expected change interest rates but they could send signals that ignite the market. On Tuesday, the Federal Reserve could remove the “extended period” wording from the statement or alter it to something that shows a rate hike may no longer be in the distant future. This would be a positive for the U.S. dollar. On the other side of the Pacific, there is speculation that the Bank of Japan may announce further special measures to fight deflation, like bond purchases, when officials meet Wednesday. This would be an explicit move that devalues the JPY.  The combination of the two meetings could make for a big USD/JPY move.

From a fundamental point of view, we can see macros getting long USD/JPY. They are seeing the opportunity for a quick profit if the FOMC signals tighter policy and/or the BoJ increases bond purchases. We doubt the Fed is going to signal anything meaningful and we don’t believe that a more upbeat economic assessment and/or altering of the “extended period” language is enough to generate a lasting U.S. rally. There is some risk from the BoJ because a move to further bond purchases would be a JPY negative but we see this as unlikely.

When neither of these expectations come to pass, we will see a round of position squaring from speculators that hurts USD/JPY and furthers the technical structure of lower highs. The slow stochastic is also flashing a sell signal.

We will target 87.50 with a stop at 92.15.

The U.S. dollar was whipsawed by poor data on new home sales and testimony from Federal Reserve Chairman Ben Bernanke. The USD tumbled against the yen and then later climbed back. On the intraday chart, the pair made a toppy formation around 90.25, with further resistance at 90.35. On the downside, 90.00 is a significant psychological level.

The levels are so close together that it’s highly likely that in the day ahead, the support or resistance is will give way. When it does, the move is likely to be strong. This is futher reinformed by the doji star pattern on the daily chart.

The doji star pattern is a signal of a big move. It’s not necessary to make a directional call just yet. We would be a buyer at 90.40 and a seller at 89.80.

It’s

It has been a quiet day in the fx market today. There has been no economic data and little to jar the market out of its quiet state.

The lazy market has given us a chance to take a look at some charts and USD/JPY is flashing some interesting signals. The week-long run-up ended with a failure at the 200-day moving average on Friday. Today the market attempted another push higher but it has faded and the dollar is now in negative territory against the yen. We also have downtrend resistance and uptrend support to contend with as we search for the initiation of a medium-term trend.

We aren’t willing to commit too strongly in one direction or the other. The rejection of the 200-day moving average even as stocks have been rising is the clearest signal we have seen. However, the rejection came at the end of a strong uptend and an overbought correction was to be expected.

We think there could be another test of the 200-day moving average and we would prefer to be long is it breaks. If USD/JPY can close above the 200dma it will also likely break downtrend resistance and should test the recent high of 93.65.

 
We would turn bearish if the pair falls below 90.

Update: As expected, the pair broke to the upside of the range. It was a nice 100-pip trade if you made it. Now, we have reached our target of 91.20. We would be selling here, with a tight stop.

It was an exciting day in the forex market with the EUR, GBP, AUD and NZD rallying significantly against the dollar and yen.

Today we’re looking at a pair that avoided most of the noise and has carved out a nice, technical channel trade. We can see it here:

There are two ways to trade a channel.

1) to buy near the bottom of the range and sell near the top

2) wait for a breakout and go with it.

Our bias is to see a breakout to the upside at this point, so buying at the bottom of the range and holding until it’s clear that the top of the range is holding. If we saw a break through the bottom, however, we would be sellers.

 From a longer-term perspective, we can build a technical case for strength or weakness. We will be watching 91.20 as key medium-term resistance.

The first thing to break down when all hell broke loose today was USD/JPY, so that is what we will be watching. Specifically, we will be watching to see if USD/JPY can rebound above 90.10, which is the the 61.8% retracement of today’s down move. As long as it stays below, we are a seller of risk trades. If it rises above, we are buying or staying on the sidelines.

Never forget: the trend is your friend. Today, no doubt, the trend was down for risk trades.

High volume and a nearly 2% drop in the S&P 500 to 1116.48 have us in a bearish mood. The USD/JPY chart broke down when Obama announced plans to limit risk trading by separating investment banks and commercial banks while banning prop trading. It’s a story that isn’t going to go away and we expect the losses in USD/JPY aren’t going to go away as well.

For those who are truely bearish on stocks, we think going short EUR/JPY, NZD/USD or CAD/JPY is a better trade but for those who want to mitigate inter-market risk, we see USD/JPY as a better trade.

USD/JPY is forming a minor consolidation between 90.57 and 90.12. Spot is at 90.40 with the 38.2% fibonacci retracement of the Nov-Jan range at 90.36. Expect further consolidation before a break below these levels for an eventual move to 89.30.

The daily chart shows the fibonacci lines. We expect to see a move inside the 50%-61.8% ‘box’ but the short-term will depend on how decisively we can break below the 38.2% retracement level. Our bearish scenario would be negated by a rise above 91.21.

The U.S. dollar fell hard against the Japanese yen on Tuesday. The move was the resolution of a complex head-and-shoulders pattern that played out in a nearly textbook fashion.

The pattern is clear on this hourly chart. The neckline comes in at about 92.22, depending on where you see the right shoulder. We see it as the first spike down, but if you measure it from the lower spike, the move targets even lower.

With our neckline, the measured target is 90.74, nearly exactly where the bottom has so far come. For those of you who aren’t familiar with technical analysis, the measured target is derived from mirroring the distance from the neckline to the top of the head and then projecting it lower.

Some traders like to try to trade the right shoulder of the pattern as a short, other like to wait for the neckline to break. Either way, you were looking at a 150 to 200 pip profit in a single day.

If you missed it, don’t expect to see a big rebound. A head-and-shoulders top often generates a major top and it could be some time before we see USD/JPY back above 93. Look to sell a rebound to the neckline as the weakness extends.

Fundamentally, it’s hard to see a reason for the yen to strengthen. Government officials there have done everything short of selling the currency in order to weaken it so we would be cautious with holding short positions in USD/JPY for too long.

The yen is making a comeback on Tuesday, extending gains made at the beginning of the week as the USD gives up some ground.

After having hit a 14-year low against the USD earlier in November at 84.83, the cross has since made a 17-week high at 93.22.

A Fibonacci retracement suggests that the next level to watch is the 91.24 mark, followed by 90.01 and 89.02. Resistance remains at 93.22, followed by 93.30.

Many traders however, are wary of the fundamental picture in Japan. With the government ramping up spending to stimulate growth, and the Bank of Japan pledging to combat the country’s rampant deflation problem, it seems unlikely that any rally in the yen can be sustained.

As a consequence, several traders are attributing this morning’s move to profit taking, arguing that the currency is gearing up for another wave of selling against major currencies.

The U.S. dollar continues to climb higher against the Japanese yen as it nears the Dec. 22 high of 91.86.

The period from April to late November saw a long, steady slide lower, culminating in the gaps lower on November 24-25 to a low of 85.00. Since then, however, the USD has rallied an impressive 600 pips.

The rebound could be seen as a retracement phase. The 38.2% retacement has already been cleared, with 50% at 93.11 and 61.8% at 95.09.

A rise to the 50% retacement converges with downtrend resistance and a minor high from early September. If 93.23 is cleared, it opens the way for a rally to 95.

In the short-term, the pair presents considerable resistance as well. If the first hurdle at 91.86 is cleared, then 92.32 show offer some stiff resistance.

We see here the significance of the 92.32 high as it was a medium-term top and led to the final leg of the decline.

The most likely scenario is a significant test of 92.32 but the multiple levels of resistance upcoming in USD/JPY likely means that the bulk of the gain has already passed.

Fundamentally, there was significant evidence that USD shorts were getting squeezed for much of December. Year-end demand has also pressed the U.S. dollar higher. Those factors are diminishing in much the same way as the chart is starting to look tired.

On the other hand, some of the U.S. dollar strength has come from optimism about a U.S. economic recovery and the sense that the Fed will hike by mid-year. The consensus has been shifting in this direction, even though we have yet to hear anything significant from the Fed.

What is clear is that the Bank of Japan will not be hiking rates any time in 2010 and likely not in the early part of 2011. If an economic recovery takes hold in places like Australia, New Zealand, Canada and even the United States. There are market participants eager to get involved in the yen-weakening carry trade.

Today I would like to talk about something a little different. I have been browsing many Forex forums and talking with many traders and I am seeing a new trend or  one could argue a trading strategy. It is called the 10 minute trader. One amazing thing about this strategy is many claim to have made a lot of money and minimized the amount of risk associated with opening a large position. These are traders opening large lots in the minimum amount of $500,000 to $5 million. How they determine which way to trade is simple, they simply view a 10 minute chart and following the trend on the specific pair they are trading. Most 10 minute traders, trade with the majors, mostly a pair that has been trading in 20-30 pip range with low spread such as EUR/USD or USD/JPY. Those pairs can prove to be interesting in this trading strategy. Looking at a 10 minute chart on EUR/USD and we can clearly see the pip opportunity of a 10 pip move on a $1 Million position, that’s a $1000 profit just for following nothing but technical analysis on a 10 minute chart , please make sure to look on the overall trend of the pair you are trading with as well by taking a zoom out in the chart or changing your time scale to hourly or daily to ensure maximum knowledge on this pair and keeping on eye out on some of the fundamental news coming out.

USD/JPY

Yes,yes,yes I know it is one of the most interesting pairs to trade with, we talked yesterday how the JPY was in a nice clear trend and waiting with the position could lead to a nice profit. Now let’s take a look over the last few days, we will find a lovely trend showing the USD getting weaker while showing us traders believe in the JPY right now. From a technical point of view, we can take a look at the next support line for this pair, if this pairs gets there it is likely to break it and the trend will continue. For us this always an exciting pair to look at and trade with, also don’t forget to look for the announcements coming from the US and Japan today. Enjoy and happy trading.

Resistances-89.80– 90.12-90.40

Supports-89.34 – 89.12-88.68

Fundamentals:  We have a few announcements today which will affect the market.

Coming from Switzerland we have the “KOF Leading Indicators”. The previous announcement was -0.04 and the forecast for today is 0.5. (09:30 GMT).

Three more announcements coming in from United States, one of importance is the “ADP Employment Change” which will be released at 12:15 GMT. The previous announcement was -298k and the forecast for today is -200k. Also coming in from Canada “GDP m/m” which will be released at 12:30 GMT. The previous announcement was 0.1% and the forecast for today is 0.4%. Also coming in from Japan is the “Tankan” announcement which will be released at 23:50 GMT. The previous announcement was -48 and the forecast for today is -33.

Fundamentals:  We have a few announcements today which will affect the market.

Coming from US we have the “Jobless claim”. The previous announcement was 545.0k and the forecast for today is 550.0k. (12:30  GMT).

one more announcement coming in from US “Home sales” which will be released at  14:00 GMT. The previous announcement was 5.24m and the forecast for today is 5.35m.

There are 2 types of analysis that are commonly used in the Forex market:

1. Fundamental analysis

2. Technical analysis

There is a constant debate as to which of these is more accurate. I’ve found that  the best analysis’s  are the ones that incorporate a little bit of both

One of the most important tools for analyzing the Forex market are the Support and Resistant lines.

Here’s how the support and resistance points are recognized:

When the market moves up and then pulls back, the highest point it  reaches before it pulling back is a  considered the resistance point.

Once the currency changes directions, the lowest point it reaches becomes the support line.

Once the Support and Resistance lines are established we can use them to position ourselves on the charts following the market trends while safeguarding our positions as well.

My next review will illustrate how to use this tool to perform Technical Analysis on the charts.

USD/JPY

Over the last few days The pair is having a little difficulties getting under the support  90.30 and staying there. Looks like this pair moving to few new support lines .the market have several bars before that happens, USD/JPY moves without a clear trend on a hour chart, when we are looking over a daily chart we can see a clear downtrend, to make it easy we can find in the last 30 days more sellers of the us dollar and more buyers of the japans yen, over the daily chart it will look as 18 reds bars and 12 blue bars

Keep your eyes open, don’t forget to put the S&R lines