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Long USD/JPY Trade That’s Ideally Validated

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Talking Points:

  • Bonds: The Most Valuable USD/JPY Catalysts
  • Elliott Wave Analysis Supports the Long Side
  • Step-by-Step Parameters for Taking This Trade

When it comes to trading USDJPY, it’s actually more important to follow US bond markets and their corresponding yields than it is to watch the general direction of the US dollar (USD).

US bond yields have a major impact on the direction of US interest rates, and interest rates have a major impact on the direction of the US dollar against the Japanese yen (JPY). The proof can be seen on the chart below, which shows the strong correlation between US 30-year bond yields and the USDJPY spot rate.

Guest Commentary: Strong Correlation Between US Treasuries, USD/JPY

Long_USDJPY_Trade_Thats_Ideally_Validated_body_GuestCommentary_ToddGordon_January17B_1.png, Long USD/JPY Trade That's Ideally Validated

Now that we understand the correlation between US bond yields and USDJPY, we should only move into USDJPY positions when there is confirmation of a similar set-up in the bond market, and it just so happens that one of our favorite set-ups for the week ahead is a long USDJPY trade that has sound confirmation from higher US bond yields.

Why Long USD/JPY Is in Play Next Week

Not to be confusing, but in the chart below, we have switched over to view the price (not the yield) of 30-year US bond futures. The reason for this is because the futures market trades 23 hours per day on the CME GLOBEX market, while bond yields are only calculated and charted approximately six hours per day. Therefore, when trading a 24-hour market like forex, it’s beneficial to track a correlated market with similar trading hours.

In the 30-year bond market, Elliott Wave analysis projects a small rally into 132.00 next week before a sizable decline targeting 130.00 ensues. If the bond rally fails next week, you now know the corresponding yield should move higher, and those rallying bond yields will help USDJPY move higher.

Guest Commentary: Long USD/JPY Trade with Confirmation from Bonds

Long_USDJPY_Trade_Thats_Ideally_Validated_body_GuestCommentary_ToddGordon_January17B_2.png, Long USD/JPY Trade That's Ideally Validated

The USDJPY Elliott wave position identifies support between 104.00 and 103.00, which is setting up a rally towards 106.00.

The trade for next week is as follows:

  • Trade Entry: Buy USDJPY at 104.00
  • Stop Loss: Place stop at 103.00
  • Initial Target: 106.00
  • Intermarket Analysis: Be sure to confirm US bond yields are indeed rallying before trading

Also, watch the corresponding video, “Bonds: The Most Valuable USD/JPY Catalysts.

By Todd Gordon, founder, TradingAnalysis.com

Receive three free months of premium trade signals and analysis by visiting TradingAnalysis.com.

Disclaimer: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors.

Analys från DailyFX

EURUSD Weekly Technical Analysis: New Month, More Weakness

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What’s inside:

  • EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
  • Resistance in vicinity of 11825/80 likely to keep a lid on further strength
  • Targeting the low to mid-11600s with more selling

Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.

Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.

Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.

Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).

Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.

For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.

EURUSD: Daily

EURUSD Weekly Technical Analysis: New Month, More Weakness

—Written by Paul Robinson, Market Analyst

You can receive Paul’s analysis directly via email bysigning up here.

You can follow Paul on Twitter at@PaulRobinonFX.

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Analys från DailyFX

Euro Bias Mixed Heading into October, Q4’17

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Euro Bias Mixed Heading into October, Q4'17

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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British Pound Reversal Potential Persists Heading into New Quarter

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British Pound Reversal Potential Persists Heading into New Quarter

Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.

GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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