USD / JPY "Buy" Analysis @ 86.93

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In March, I shared my USD / JPY “Buy” analysis that resulted in a loss. The trade triggered and we were stopped out within 4 hours on the infamous “fat finger” Thursday - when the Dow dropped 1000 points within a couple of trading hours. The trade experience is a reminder that trading or investing is NOT an activity of certainty but of probability. It also highlights the importance of risk control especially stop losses.

I have been monitoring price action in the USD JPY for months and believe it is time to start buying the US Dollar against the Japanese Yen again.

Fundamentals: The fundamental reasons for my "Buy" analysis back in March remains relevant.

• Interest rate expectations - While the United States Federal Reserve (Fed) maintains its position to keep rates low “for an extended period”, US rates will almost definitely rise faster than that of the Japanese. Like I wrote in March, the Bank of Japan still has to win the battle against deflation and so Japanese rates are staying low for a lot longer. The prospects of a widening interest rate gap calls for  a rise in USD JPY from current levels.

• Threat of Intervention – The export modeled Japanese economy cannot condone a strong Yen. Yen at the 86 level for a sustained period invites the threat of intervention or even intervention. I think intervention is very possible  on a dip below 85  as it will be devastating to exports. The USD YEN is currently trading at 86.87. From a risk reward standpoint, 86.87 is a good place to start buying this pair. The risk of a dip below 85 is low, and even if the BOJ doesn’t intervene, rumors of intervention will make traders uneasy and rightly so..Japan is one country that has successfully intervened to weaken its currency in the past.


Technicals: From a technical stand point, the chart below (weekly, 5 year); highlights the 5 – wave decline in USD / JPY from 124 in June of 2007 to just above 87 in January of 2009. Then the pair has consolidated within a range -  between the mid 80s and 95. The consolidation range bottoms out 86 (with spike low down to 84.91). The 85to 87 zone has served as solid horizontal support since January 2007 and is a good buying zone.

Trade Plan:

Buy 2 Standard Lot of USD JPY following the entry points below

Buy 1 lot of USD JPY @ 86.93 (current market price)

BUY 2nd lot of USD JPY @ 85.00 (if it falls that far).

1 standard lot, 1 pip = $10.08

If both entry points are hit, average entry will be 85.97



Risk Control:

Stops for all 2 lots should be at 84.40 (total risk potential of 313 pips)


Profit Targets:

First in, First out…

Sell 1 lot @ 97.00 (1007 pip potential)

Sell Final lot @ 99.00 (1600 pip potential).