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Japanese Yen Breakdown Post-BOJ Offers Breakout Trading

By , Quantitative Strategist
08 April 2013 16:00 GMT

Article Summary: An astounding post-BOJ breakdown in the Japanese Yen leaves us plainly in favor of selling the Yen across the board—particularly with our volatility-friendly trading system.

DailyFX PLUS System Trading Signals A massive move across Japanese Yen pairs leaves us firmly in favor of breakout trading until further notice, while our retail sentiment-based trading strategies have likewise done well selling the US Dollar against broader counterparts.

You can view a more full explanation of our reasons behind JPY shorts in today’s archived strategy webinar.

DailyFX Forex Volatility Index Versus JPY Volatility Index (JPYVIX1M)

forex_strategy_favors_selling_japanese_yen_via_breakout_system_body_Picture_1.png, Japanese Yen Breakdown Post-BOJ Offers Breakout Trading

Source: OTC FX Options Prices, DailyFX Calculations

The US Dollar/Japanese Yen pair has now matched its biggest 3-day rate of change (+6.0%) of the past 20 years, and we think JPY pairs can continue to see big moves. Why? Relative yields have historically been the biggest driver of the Yen, and the Bank of Japan has decimated the appeal of holding Japanese Government Bonds as it embarks on aggressive Quantitative Easing policies. Read: much weaker demand for JPY holdings.

Our retail sentiment indicator tells another important story: our Speculative Sentiment Index shows there are currently 1.9 traders short the Euro against the Japanese Yen (short EURJPY) for every one that is long. In fact, total long interest has plummeted 44 percent while short interest has gained 18 percent since last week. This has led 3 of our 4 contrarian sentiment-based trading signals to go long EURJPY with an average price of ¥125.60.

Past performance is absolutely NOT indicative of future results, and you have to expect there could be an important correction before we see further multi-year JPY lows (if at all). But the current level of volatility expectations across Japanese Yen currency pairs leaves us plainly in favor of those same sentiment-based strategies—particularly Breakout2, which has historically done well in volatile markets.

I don’t want you to take my word for it—participate in our promo and get these strategies to test yourself.

View the table below to see our strategy preferences broken down by currency pair.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

forex_strategy_favors_selling_japanese_yen_via_breakout_system_body_x0000_i1026.png, Japanese Yen Breakdown Post-BOJ Offers Breakout Trading

forex_strategy_favors_selling_japanese_yen_via_breakout_system_body_1a.png, Japanese Yen Breakdown Post-BOJ Offers Breakout Trading

View how to automate the high-volatility Breakout2 Trading System via our previous article and webinar recording.

Auto trade the trend reversal-trading Momentum2system via our previous article and webinar recording.

Trade with strong trends via our Momentum1 Trading System and view an archived webinar

Use our counter-trend Range2 Trading system and view an archived webinar guide on automation

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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08 April 2013 16:00 GMT