Japanese Yen Does Nasty Head-Fake, Looks Bearish Post-BoJ
USDJPY – Last week we wrote that we were mostly bullish the Japanese Yen (bearish USDJPY, EURJPY, GBPJPY) on a big build in crowd selling. Yet the opposite has happened overnight, and we like the fact that our Breakout-based trading strategy is buying into JPY crosses on the break higher.
Trade Implications – USDJPY: Last night’s Bank of Japan meeting sent the Yen reeling and took our Breakout2 system out of several JPY-long positions (USDJPY, EURJPY, GBPJPY shorts). That was obviously a tough break, but that’s why we use stops. Since then, our sentiment-based Momentum2 system has actually gone long USD from ¥95.60, EUR at ¥121.38, AUD from ¥99.32, and CHF at ¥101.25.
I hesitate to flip direction so rapidly on a given currency; it’s often poor practice as it leaves us extremely prone to getting chopped up in sideways markets. We obviously can’t rule that out, but the persistent JPY tumble leaves it below key support across the board. As with the EURUSD and GBPUSD, keep stops tight and leverage low given extreme choppiness across FX Markets.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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