Sunday, February 9, 2014

Did last Friday’s weaker Non Farm Payrolls ease market turmoil? | Forex trading thoughts: the Japanese Yen

The big question for Forex traders is whether or not the turmoil in equities and in emerging market currencies has eased. If it has, then focus can return to such matters as the effects of the proposed gradual tapering of US Quantitative Easing. This will be positive for US dollar longs. One irony is that if this is the case, a significant factor will have been two successive disappointing Non Farm Payrolls reports, for December 2013 and January 2014.

Tomorrow, Tuesday, Janet Yellen, the new chair of the Federal Reserve, will go to the Congress to give the Fed’s stance on economic conditions and policy. This is eagerly awaited as it is her first such event since becoming Fed chair. Yellen has in the past been in favour of QE but she is joined on the Federal Reserve by a number of new voters, such as the chairman of the Dallas Fed, Fisher, who has made it plain that they are strongly in favour of tapering, and the sooner the better. Fisher is a Texan and that is presumably why, even if he does not eat barbed wire for breakfast, he feels it necessary to make it sound as if he does. See “New Fed voter in favour of aggressive tapering”.

Forex trading thoughts: The Japanese Yen

On Friday last the Japanese Yen demonstrated a Technical Analysis pattern that might seem to suggest that its recent strength against the US dollar could be coming to an end. This would be consistent with the Fundamentals of a possible alleviation of the emerging market turmoil, which drove investors into the Yen as a safe haven. If the disorder in EM and equities has actually died down then the Yen will, once more, be subject to the principles of Abenomics, so called because they are the brain child of the Japanese Prime Minister, Shinzō Abe. These policies are designed to weaken the Yen.

The Japanese have had more than enough bad experiences of deflation. If this phenomenon is now exercising the minds of western Central Banks, it can be expected to be even more in the thoughts of the Japanese. This is a further argument for the continuation of current Japanese monetary policy.

The four hour chart for USDJPY above has carved out a double bottom and a higher high. Higher highs and higher lows indicate a rising trend.

When the Yen weakens the USDJPY pair goes up. For the reasons set out here we will be setting the Silver Trigger routine to take a long trade in this pair in the event of a pull back to or below 101.772. The trade will be negated if price falls to or below the previous low (the level of the double bottom). Depending on momentum in the pair over the coming sessions, we may even decide to act before a pullback to the level indicated.

Important disclaimer: None of the commentary here constitutes investment advice. It is for educational purposes only. There are many countervailing views on the way the market might move and no one, not us or anyone else, can foretell the future. You should only trade with money you can afford to lose. It is important that you make money management and the control of risk the cornerstones of all your trading activity.

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