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USDJPY: A Potential Reversal Elliott Wave Pattern Needs A Catalyst

If you tuned into our FACE show yesterday, June 26th, you would have caught the discussion between Blake and me talking about USDJPY. As you know the pair is trading higher, breaking above 160.22 this week, which was the previous 2024 high.

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The risks and rewards of trading 152 in USDJPY

Big level. Big moment. Big reactions. Know your trading risk.

Given the price action and market expectations in the last few days leading up to the BOJ, it’s no surprise to see us up at 152 again. As we were saying at Forex Analytix a few weeks before, this was heading towards a ‘buy rumour, sell fact trade’, and probably the most obvious one we’ll get this year.

The weekly chart of USDJPY

USDJPY Weekly chart

So, what do we do now we are again at 152?

  1. It should be noted that we’ve never traded 152 in any of the attempts, so the first thing that sticks out is that there’s likely barriers there.
  2. The MOF/BOJ have twice intervened and jawboned in and around the last two moves there. Doing so once is fine. Twice raises an eyebrow. A third time would ring bells. If the FOMC causes a break that forces Japan to intervene, that would be a clear indication that they do actually have a pain level for USDJPY, despite saying they don’t focus on any particular level.
  3. Whether 152 is a level for them, or not, doesn’t change the fact that the risk of intervention following the BOJ meeting is now very high.
  4. Three big tests over a large period of time means there’s going to be some very chunky stops sitting just above, so a break will likely be volatile. That will likely mean we go to 153 in a flash, and further after. But, that again increases the risk of intervention.
  5. It’s not all about USDJPY (for intervention purposes). The BOJ looks at JPY as a whole and they look at the JPY NEER, which despite us being at 152 again in UJ, is higher at 80.25 (as of yesterday), than it was (low-sub 79.00’s) when we’ve been here before. That maybe suggests JPY isn’t as weak as before, and thus USDJPY might be allowed to go above 152.
  6. The Fed. Two sides to a pair remember so what the Fed does will affect USD above all else. In that sense, USDJPY moving through or holding 152 will have to be monitored in context with other JPY pairs. USDJPY going up while others like EURJPY, GBPJPY, AUDJPY stay steady or head lower, reduces the intervention risk because it won’t therefore be a yen move. That would be a green light for a break. Conversely, a non-hawkish Fed might mark 152 as yet another top as part of a broad USD sell off.
  7. Whatever happens over the Fed, we will then switch to the JPY side into the Asia session and they’ve not been shy in smashing JPY. The risk is for dip buyers to pile into USDJPY again to push for a 152 break, or come in to support a break.

    As you can see, there’s plenty of reasons why 152 might break or hold and as traders we need to know that there is now much higher risk with trading it than perhaps even before the BOJ meeting. We could be looking at a 200-300 pip move either way just over the next few hours. By comparison, we might be lucky to get a 100 pip range in something like EURUSD, so you need to be more of a risk manager if you want to trade JPY right now.

Bank of Japan

Trading the BOJ

A new era begins for Japan’s BOJ

A new governor and a new direction for the BOJ? We’re about to find out so here’s some thoughts about trading it.

Just getting my (Ryan) ducks in a row ahead of the BOJ and I’m going to be watching a very wide area in USDJPY, which (give or take a few yens), we’re in the middle of (127-138). With events like this you have to know the sentiment on both sides of a pair so that you know how to react if something happens that moves the price the opposite way of that sentiment.

Right now, we know the market is less certain about the dollar, the Fed and the data, and the political stuff, hence why yields keep dropping and USD keeps a slightly bearish tone. So, if USDJPY rallies on the BOJ, and US yields remain under the cosh, as does USD vs other pairs, a rally here would look out of place, and then we ask how far does that go before a counter trade becomes too good to resist?

I’m positioned short already and happy to add up to that 138 if seen, and if only mainly driven from the JPY side. A sustained move over 138 and I’ll be reassessing that trade. On the otherside, a steep drop on the BOJ would mean they’ve signalled a change is coming and that’s going to lead to perhaps the start of a decent leg lower (120’s?).

The 127/128 will be where I’ll watch for an initial move becoming stretched. That will give me somewhere to look to take profit and also to add back (or add more) if it breaks. So, even if you aren’t already in a trade, these areas are where you may get an opportunity just based on the techs rather than the fundamentals.

USDJPY technical analysis chart

I also like my colleagues’ Kman’s view of AUDJPY as a BOJ trade. Again, matching off the fundamentals between the two, we’ve seen Aus inflation coming down more than expected, which pushes the RBA further towards less hikes, and Aus related commods haven’t been doing great either. So, again, any move that pushes AUD out of sync with its own issues potentially leads to a decent counter trade. I’m watching another zone in the pair.

AUDJPY technical analysis chart

Now, you may think that I’m taking it for granted that the BOJ are going to move away from easing, and thus JPY will definitely rally but that’s not the case. I’m just going on the signals I’m deciphering from the BOJ and the data, that they are as close to being able to end easing as they’ve ever been, plus I think inflation is going to stay toppy for them, as it is for everyone else. The evidence (IMO) is stacking up for them to be able to turn and I’m happy to trade that until something comes along that makes those thoughts invalid.

 

 

Trading JPY, BOJ Ueda, forex

Big (risk) in Japan

We have two huge events for JPY on Friday in Japan

On Friday in Japan we have CPI numbers and then BOJ nominee Ueda attending his first hearing in the Lower House. These can both be big movers for JPY.

Japanese inflation

Core inflation is expected to rise to 4.2% vs 4.0% pr y/y.

If this number is hotter than expected, yen could gain significantly at least on a kneejerk reaction. The opposite is likely if the number is softer than expected and/or lower than last month. Whatever the move, the market will still be thinking about Ueda next so any significant move may revert to a more neutral stance quickly after.

BOJ’s Ueda

This is a tough trade. On one hand we have the risk that he’s being brought in as a changing of the (monetary policy) guard. Someone who’s not of the old ‘team easing’. That in itself is hawkish if true. But, on the other, even if he is being implemented to lead Japan out of the ultra loose policy, he won’t be doing so in a rush and keeping markets from getting too expectant will be his ultimate task.

So, finding the balance in any comments is going to be important. The last thing he is likely to do is rock the boat with any big hard hitting comments in his first real public event. For example, he could say an exit will be looked at but then counter by saying something like it might take 10 years to get there. There really is a ton of permutations we can find for this, both hawkish and dovish, and that means potentially big volatility for markets.

How to trade it

Purely from a risk perspective, I think the lowest risk trade might be to buy a dip in USDJPY on a strong CPI number to hold into/over Ueda.  If he plays it ultra safe on exit talk, JPY pairs are likely to rally. If the market quickly fades a drop in USDJPY on the CPI, that could give longs some trading margin to play with into Ueda.

On the otherside of the pair, USD is still bullish while expectations for the Fed remain more hawkish, so dips are currently very shallow while US yields hold up on their highs. Therefore, long USDJPY is the path of least resistance. But, the risk is if the CPI is strong, and Ueda is hawkish, and then we’re likely to see a much bigger downside move. On that scenario there’s going to be a battle between a newly hawkish BOJ and a currently hawkish Fed.  If I had to pick a side, I would pick the JPY side as the BOJ turning hawkish would be a far bigger and longer-term event than whether the Fed is possibly going to take their rate ceiling up a mere 50bps from 5.5% to 6%.

In trading we often try to cover all the bases when trying to pick a trade but for me, I always look for the one that has, in my opinion, the least risk. Therefore, there may be many other trades to take, on many other possible outcomes but when I take a step back and look at all the parts (US & Japan) from a wider perspective, this is the one I like the most. Does it mean it will succeed? No. Does it mean I will definitely get a trade? No. In the first instance, I won’t be interested if there not a significant move over the CPI. Plus, I am still running some core shorts down to 131 so I may even use a strong CPI number to reduce or get out of that trade, with the consideration of Ueda sending USDJPY much higher.

On the tech front, we have a big closing confluence area high 136’s, low 137’s, then 138’s

USDJPY Daily

To the downside, 133.00/132.80 is the first big level. then 131.50-131.00/25.

Maybe the best advice I can give to traders is that as this is a big risk event, it does no harm to stay out and wait until the dust settles so that we have a clear idea of what may follow.  No one is going to miss a big trend move in one moment. Yes, we may miss the start, or a big initial move but something like the BOJ changing stance won’t be “priced” in one day. The saying “If in doubt, stay out” has served me well lover the years.

Whatever you do, however you trade, please trade safe and good luck.