Long the US Dollar against the Japanese Yen
In truth, there's clear risk that the USDJPY could trade lower. Yet I view the potential downside as limited compared to fairly significant upside.
The USDJPY has traded on a virtual tick-for-tick correlation with the 2-year US Treasury Yield and any singificant bounces will have to wait for a shift in interest rate expectations. But the 2-year is already at incredible lows of 0.24 percent--there really isn't much further downside.
With that in mind I'll go long USDJPY against the 2012 low of ¥76 with initial targets starting at the ¥80 mark. This is a long-term trade, and obviously I need to make sure my entry price offers at least as much reward as risk. As such this trade is valid at ¥78 or below.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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