Talking Points:
- In this webinar, we focused on the Yen after the huge movements from the overnight session after the Bank of Japan elected to hold monetary policy. This produced massive Yen strength while also driving the Nikkei lower.
- The juxtaposition of entering in USD/JPY at present levels is the fact that price action remains so close to near-term support. This could limit top-end profit potential on short-side plays, and may behoove traders to instead wait for a resistance inflection before looking at the prospect of trend resumption in the pair. Given the lack of nearby resistance levels, traders could add a Fibonacci retracement over the recent major move to plot potential entry levels (shown below).
Created with Marketscope/Trading Station II; prepared by James Stanley
- One way traders might be able to approach such a situation is to diversify the theme: As in, if traders are looking to sell USD/JPY, they’re basically looking to get short USD while getting long JPY. But this doesn’t have to be done in USD/JPY, as traders can essentially split the strategy by looking to sell USD against another currency whilst buying JPY against that same currency.
- One mannerism of doing so could be in the British Pound, as a recent bout of strength in GBP/USD could allow for top-side trend resumption entries, while GBP/JPY could offer short-side setups for traders to seek out that long Yen exposure.
- We also looked at employing this strategy in the Australian Dollar, looking to get long AUD/USD off of a recent support channel inflection, while also looking to sell AUD/JPY. The net effective exposure would allow the trader to be short USD and long JPY, while also incorporating the recent volatility of the Australian Dollar into the approach.
--- Written by James Stanley, Analyst for DailyFX.com
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