Japanese Yen Might Finally See Big Moves - How Can we Trade?

DailyFX

- Japanese Yen could see major moves on a highly-anticipated BoJ decision

- Our Senior Currency Strategist highlights critical USDJPY price levels

- Sentiment-based trading strategies would likely latch onto Yen reversal

The US Dollar and Japanese Yen stand at major levels versus the Euro and other forex counterparts. What might force a break and how could we trade it?

Traders have kept the Greenback within a tight trading range versus the JPY, but the next move could be sharply lower in the USDJPY; our Senior Technical Strategist highlights key levels to watch.

The obvious question is whether this week will bring that major break, and if so how might we trade it? A highly-anticipated Bank of Japan interest rate decision could indeed bring the volatility we’ve been watching for. And given the fact that traders were recently their most short JPY futures on record (long USDJPY), there’s real risk that panic-driven short-covering could send the Yen higher (USDJPY lower).

In the meantime we’re admittedly at a bit of an impasse; until we see major breakouts/trends, there may be few compelling trade opportunities.

Our purely forex sentiment-based Momentum2 trading strategy recently got aggressively long the JPY against the Dollar, Euro, British Pound, and Swiss Franc. Yet those positions were stopped out at modest losses as pairs reversed.

We’ll keep a close eye on the Japanese Yen and keep traders updated via our forex real time news feed. Take a look at full strategy preferences below and sign up for future e-mail updates via my distribution list.

Forex Volatility Prices Have Picked Up Following Last Week’s Lull but Remain Low

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Source: OTC FX Options Prices from Bloomberg; DailyFX Calculations

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

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--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

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ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.

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