Trading the Yen on Bank of Japan

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In general, the longer term trend in the Yen crosses has probably reversed (from down to up). One thing that worries me about being long Yen crosses right now is that prices made their highs on the first day of April thus making April a bearish month. Highs early in the month are often accompanied by lows late in the month. This tendency suggests that we could get a better long entry in May. However, the rumor today that the Bank of Japan is expanding its asset purchase program by only 5 trillion rather than 10 trillion is reminiscent of the Chinese PMI rumor from 4/12. That ‘rumor move’ was completely retraced in 2 days. The 2 events are completely different but the psychology is the same; sell the move that is predicated on a rumor. I am bullish the USDJPY above 7900 with plans to add to the position if it dips below 8025.

USDJPY DAILY

Prepared by Jamie Saettele, CMT

The USDJPY has retraced nearly half of its advance from the February low. 50% retracements are often good levels to join the larger trend. RSI action on the daily is bullish. Extremely overbought readings are what you WANT to see in a bull market. Another characteristic of a bull market is that RSI will not dip below 30. Keep in mind that RSI is calculated with closing prices so a spike to a new monthly low (below 8028) and subsequent recovery is possible. The 50% retracement of the 7602-8417 rally is at 8010 and the October intervention high is at 7953. A dip into these levels would provide an optimal entry for bulls. In the event of a ‘surprise’, the April high is at 8330, March high at 8417 and April 2011 high at 8552.

USDJPY DAILY with Monetary Policy Meeting Days

Prepared by Jamie Saettele, CMT

Monetary policy meeting days are colored red if the day was a down day and blue if the day was an up day. This chart looks back to 2011. If anything, this chart shows that the MPM days are not all that valuable regarding trading. Some occur at turns, some occur in the middle of ranges and some occur in the middle of trends. The 60 day average is probably the most useful thing on this chart. It was resistance on the way down last year and is acting as support right now.

The table highlights important levels over several degrees of trend. If the Yen crosses have turned the corner, then prices shouldn’t come close to their 60 day lows. Most crosses have either bounced from or are just below the 50% retracements of their 60 day ranges, which do tend to hold in longer term uptrends. Use the 20 and 5 day highs/lows as shorter term support/resistance to help construct shorter term trades.

To contact Jamie e-mail jsaettele@dailyfx.com. Follow me on Twitter @JamieSaettele

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Jamie is the author of Sentiment in the Forex Market.