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This past week, the JPY took several traders by surprise. The larger expectation for the JPY remains that the currency should essentially be weak, after all that is the position of the central bank, and as traders we try not to fight Central Banks.
Several of the big banks have been issuing long trade setups, while only a few have caught the downside.
But was this justified at all? Here are some reasons why it made sense to be focusing on short XXX/JPY, and the move was not much of a surprise after all.
First let's take a look at the COT reports below
What the chart tells us, is that on Jan 5 the COT showed Net Positioning crossing to the LONG side. Something that we have not seen in several years. In fact we cannot see on the chart the last time net positioning was to the long side for JPY. Certainly a big clue.
Next, we have the weekly trends. The USDJPY may have been in a long time bullish trend. But on the weekly chart, as well as a break of a major daily support level, the pair is making lower highs and lower lows for several weeks. The pair is bearish on virtual every time frame from the monthly chart down. Here is a simple weekly chart below.
Fairly clear to see from the above chart, that the pair turned to a bearish trend some time ago. This is without doing complicated technical analysis and just looking at lower highs and lower lows.
The majority of the other pairs, have been bearish a much longer time, and have much more clearer trends. Several of the pairs are even trading below their 200 weekly moving averages. Certainly not the case of an effective Central Bank. Here are the weekly charts of some the Major pairs.
EURJPY
GBPJPY
CHFJPY
AUDJPY
NZDJPY
CADJPY
It is quite clear, from a technical perspective, the central bank has not been effective in maintaining a weak JPY.
Further, as several traders hedge their trades in the Nikkei, there is further potential for USDJPY to continue lower as the Index is now under pressure as well. That is a whole other blog post however.
While it may not make sense to jump in the trade now, as the move of last week was quite abrupt, which signals we may have a pause in the form of a consolidation in the following week, this trend is here to stay. There are no bullish technical signs on any of these pairs, and several look they are just starting to get momentum in their bearish cycle.
Until there is significant technical evidence of a return to a bullish cycle, the strong JPY may be a theme to watch out for in 2016.
Several of the big banks have been issuing long trade setups, while only a few have caught the downside.
But was this justified at all? Here are some reasons why it made sense to be focusing on short XXX/JPY, and the move was not much of a surprise after all.
First let's take a look at the COT reports below
What the chart tells us, is that on Jan 5 the COT showed Net Positioning crossing to the LONG side. Something that we have not seen in several years. In fact we cannot see on the chart the last time net positioning was to the long side for JPY. Certainly a big clue.
Next, we have the weekly trends. The USDJPY may have been in a long time bullish trend. But on the weekly chart, as well as a break of a major daily support level, the pair is making lower highs and lower lows for several weeks. The pair is bearish on virtual every time frame from the monthly chart down. Here is a simple weekly chart below.
Fairly clear to see from the above chart, that the pair turned to a bearish trend some time ago. This is without doing complicated technical analysis and just looking at lower highs and lower lows.
The majority of the other pairs, have been bearish a much longer time, and have much more clearer trends. Several of the pairs are even trading below their 200 weekly moving averages. Certainly not the case of an effective Central Bank. Here are the weekly charts of some the Major pairs.
EURJPY
GBPJPY
CHFJPY
AUDJPY
NZDJPY
CADJPY
It is quite clear, from a technical perspective, the central bank has not been effective in maintaining a weak JPY.
Further, as several traders hedge their trades in the Nikkei, there is further potential for USDJPY to continue lower as the Index is now under pressure as well. That is a whole other blog post however.
While it may not make sense to jump in the trade now, as the move of last week was quite abrupt, which signals we may have a pause in the form of a consolidation in the following week, this trend is here to stay. There are no bullish technical signs on any of these pairs, and several look they are just starting to get momentum in their bearish cycle.
Until there is significant technical evidence of a return to a bullish cycle, the strong JPY may be a theme to watch out for in 2016.
