Thursday, March 17, 2011

USDJPY—30-year chart

USDJPY fell quite a bit below the April 1995 low of 79.70 to a low of 76.59. It recovered to 79.74 overnight and is languishing in the 79 zone since then. There are many stories about the currency afoot—the central bank is intervening or its not; yen are being repatriated or not. I thought it worthwhile to take a longer-term look back at the chart. I have posted the 30-year monthly chart below.

On the chart, I marked the point of the Kobe earthquake in January 1995. This was a major disaster for Japan and one can see that the yen continued to strengthen in the months following the earthquake, bringing USDJPY from 101.45 down to 79.70. It's possible a similar story will play out this time even though there are differences between the two situations.

Another thing to note on the chart is the multi-year triangle. This suggested there would be a long downside move. That happened. The target of that triangle is 75.43 so it supports the idea that the yen could continue to strengthen although the vast majority of the move may over. Using some geometric techniques, I've long had another price target of 77.91 that of course has been exceeded.

One more thing on this chart is the positive divergence between price and RSI. One can't trade based only on divergence but it's an intriguing signal that there might be some upside in the offing.

Is the central bank intervening? The length of the most recently closed 3-hour candle suggests they are. I read that on Monday they sold yen, buying 186 billion dollars. However, as history shows, intervention doesn't always work to stop a slide determined to happen.

So what now? Taking the conservative road is not a bad idea—staying out of the market completely until the situation with the nuclear reactors stabilizes. Rumors are rampant and can cause large market moves quickly.

If one is going to trade, one needs to do so with tight stops. However, tight stops have a downside—in volatile and uncertain times, they can be taken out rather suddenly and then the market moves in the direction of the initial trade. Wide stops, though, are not the answer. Yesterday, for example, the GBPJPY moved from a high of 130.54 to 122.71 and the EURJPY moved from 113.31 to 106.64. You can offset the volatility somewhat by changing your position size downward. If you normally trade full lots, lower it to mini-lots; if you normally trade mini-lots, lower it to micro-lots.

I've been trading very little in the last few days—this type of market is better observed. When I do trade, I'm often in and out quickly. This style of trading doesn't lend itself to blogging so you've seen fewer blog posts from me.

I hope and pray that things will stabilize in Japan quickly. The Japanese people are resourceful and resilient. They may come out of this stronger than before it began.

Here's the 30-year chart:

© Dianne Fecteau, 2011. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

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