By: Tim LuCarelli
published on December 18, 2012
Market: USD/JPY - Forex
Session Date: Tuesday December 18, 2012
Buy or Sell: Buy
Range: Current price to just below 83.50
Chart: Daily chart of the USD/JPY with Stochastics set at 12-3-3
I really hate jumping into markets that have moved a lot very quickly. However, when a market is making a major turnaround getting in on a much larger move can be very exciting. The Yen is one of those markets. Currently it is in the throes of fundamental and technical changes.
Sunday there were major governmental changes by the election of Shinzō Abe leader of Japan's Liberal Democratic Party to the office of Prime Minister. This is his second time as Prime Minister after being elected in 2006 and resigning in 2007. He takes over for Yoshihiko Noda on December 26, 2012 and has pledged to aggressively fight deflation with more government spending and a higher inflation target of 2.0%. There are two Bank of Japan (BOJ) appointments coming up early next year and Abe has stated he will seek to replace those board members with more aggressive deflation fighting members. Additionally, the Prime Minister can appoint a new BOJ governor. With more of his people in the BOJ he has vowed to push interest rates lower, devalue the Yen and raise inflation.
In addition to Abe being elected the Liberal Democratic Party also won a majority of the Lower House of Parliament assuring Abe's ability to enact many new policies. If he does everything he has said he would, Abe could actually breathe life into Japan's stagnant economy. The Yen dropped considerably on Abe's election news and could be forced even lower on Thursday when the BOJ meets. Speculation is rising they may the first central bank to go negative with interest rates.
Technically on a short term basis the Yen got ahead of itself on the release of the election news. It did none the less break above the 84.00 mark for the first time since March. The risk is high for a pull back of a couple of hundred pips but the potential reward is greater. If you can stomach the potential risk this is a great market in which to be long.
Aggressive entry; buy now with a stop below 81.75 and a profit of 95.00, conservative buy on a dip below 83.50 with a stop of 82.75 and a profit of 86.00.