Tuesday, May 31, 2016

USD JPY Breaking Ichimoku? Forex Trading Strategies

Konnichiwa! As we head to the end of May, and Americans are fresh off a three-day Memorial Day holiday weekend, an interesting forex trading scenario is forming on the US dollar - Japanese Yen forex dance floor. Why is USD JPY breaking Ichimoku cloud? And what happens if it confirms? It is time to check with all points of the Invest Diva Diamond[1]  Analysis and build our USD/JPY trading strategy for June 2016.

1- Japan Economy

Regardless of our possible observation of USD JPY breaking Ichimoku, we still need to check the fundamentals behind the pair's movements. Let's first look at the Japanese economic situation.

  • Ms. Yen is no longer the strongest currency of 2016:  Ms. Japanese was able to capture the investors' hearts in her pink Kimono an epic dance moves the first 5 months of the year. However they have started a new trend of dumping poor Ms. Yen in the past few days. From the looks of it, she could be getting dumped by many more investors in the days to come. recovery plan highly depends on a weak Yen.
  • Japan doesn't like a strong Yen (for the most part): High demand for Ms. Japanese Yen breaks the heart of Japanese Prime Minister, Mr. Abe. Not because he is a crazy jealous boyfriend, but because high demand makes Ms. Yen stronger. And a strong Japanese Yen smashes exports and dampens inflation[2] at a time when the country is trying to boost both.
  • Rumored Sales tax hike delayWith the above mentioned heart break, there are now rumors the Prime Minister Shinzo Abe wants to delay Japan's sales tax hike. This is perhaps one of the biggest factors that triggered that sharp yen selloff. He is rumored to want to delay the sales tax hike originally scheduled in April 2017 all the way to October 2019. That's two and a half years later than initially intended!
  • Delayed Sales Tax Hike Could Weaken JPY Because...: Under normal circumstances, a delay in sales tax hike wouldn't weaken a country's currency. However in Japan's case, they are trying to get rid of a budget deficit. So while postponing an increase in consumption tax could actually allow domestic spending to stay strong for much longer, Abe's leadership has been pushing for a return to a primary surplus by 2020 or risk downgrades from credit rating agencies. These contradiction is give Mr. Abe a ton of headache. And that could be one of the reason why investors don't find Ms. Japanese a safe haven any more... at least for the time being.

Keep an eye on...

In general, higher-yielding currencies such as Mr. Aussie  and Ms. Japanese Yen  have been dancing lower the latter part of this May. This could be a possible indication of a return in risk appetite. After all, crude oil prices have been on a tear then, convincing several market watchers that the commodity slump is already over. The Nikkei 225 index has also been on a positive streak lately, lifted partly by stronger than expected retail sales and household spending figures from Japan. This could keep Asian session traders hungry for riskier and higher-yielding assets, dampening demand for the Japanese yen in the process.

Of course the current market sentiment could still shift depending on the top-tier catalysts scheduled for this week, particularly that of China's PMI readings on  Wednesday Jun 1. What this video for more on the economic calendar.

2- US Economy

Obviously the coolest tune that has got Mr. USA dancing was the recent Fed meeting. Mr. USA (aka US dollar) seems to have regained the upper hand on the forex dance floor against the lower-yielding currencies most notably after Fed Chairperson Janet Yellen didn't shy away from expressing her hawkish views during her latest testimony. You see, even though the U.S. central bank is expected to hike interest rates in a couple more instances this year and Fed officials have shared their upbeat outlook, traders were hesitant to put money on the dollar in anticipation of cautious remarks from Yellen. Back then, the Japanese yen was able to take better advantage of risk-off moves in the forex market.

But when our girl, Ms. Yellen grabbed the mic and admitted that a rate hike is "appropriate in the coming months," fans of lower-yielding currencies took it as a cue to drop their yen holdings in favor of the U.S. dollar.

Keep an eye on...

  • US Manufacturing PMI on Wednesday June 1
  • US ADP Non-Farm Employment Change on Thursday June 2
  • US Weekly Unemployment Claims
  • Non-Farm Employment Change on Friday June 3

3- Technical Analysis | USD JPY Breaking Ichimoku?

Now that we've crushed the fundamentals, let's see what the technical[3] point of the Invest Diva Diamond[4]  suggests for USD/JPY Forex Trading Strategies for June 2016:

Big Picture Monthly Chart: The pair remains above the ichimoku cloud[5], and we saw a massive correction candlestick in May. However this bullish candle is still shorter than April's bearish one. The first pivot the pair needs to break above to confirm a long term bullish signal, is approximately at 110.50. This is a very important level because it falls both on the long term 61%Fibonacci[6]< /a> retracement, and short term 23% Fibonacci[7] level. Second pivot which is even more important is set at 113.50.

Daily Chart Market Sentiment: Can you see USD JPY breaking ichimoku cloud[8] on the daily chart?  Not only this is a very important level from an Ichimoku point of view, the pair has tried this level of 111.20 many times in the past 6 months. It has acted as both resistance and support levels. Not to mention the fact that it falls right on short term 23% Fibonacci. With this, a confirmation above this level could open doors for further upmoves towards our next pivot level at 113.50.

4- USDJPY Forex Trading Strategy for June 2016

As a savvy Invest Diva student[9] you should already be able to put the two and two together and come up with your own USD/JPY Forex Trading Strategy. But for our newbies and first time visitors, let me elaborate.

If we don't see a change in stance on either the Fed or BoJ, we could expect the pair to keep its bullish sentiment. Japan really hopes for JPY to weaken and for the USD/JPY pair to dance upward.

[10]

Bearish triggers: 

  • No June rate hike from Fed
  • Failiur to break above Ichimoku
  • Worse than expected US economic data in June

Bullish[11] triggers: 

  • Japan Economic stimulus, rate cut or QE
  • Hawkish Fed and amazing US economic data
  • USD JPY breaking Ichimoku
  • A second break above 113.50

Summary: Currently we are waiting for a confirmation of a bullish signal for  USD/JPY. However this weeks fundamentals could change history if the politicians are up for it. To learn how to manage your portfolio based on the outcome, or to learn about other currency pairs, stocks and ETFs, book your  investment coaching session[12] with me this week!

Here are the important USD/JPY  approximate levels to keep an eye on:

Support Levels Turning Point Resistance Levels
106.50 111.20 116.15
100 113.50 118.20

This article was originally published on InvestDiva.com[13].

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



References

  1. ^ Invest Diva Diamond (investdiva.com)
  2. ^ inflation (investdiva.com)
  3. ^ technical (investdiva.com)
  4. ^ Invest Diva Diamond (investdiva.com)
  5. ^ ichimoku cloud (investdiva.com)
  6. ^ Fibonacci (investdiva.com)
  7. ^ Fibonacci (investdiva.com)
  8. ^ ichimoku cloud (investdiva.com)
  9. ^ Invest Diva student (investdiva.com)
  10. ^ (kiana3.typeform.com)
  11. ^ Bullish (investdiva.com)
  12. ^ investment coaching session (investdiva.com)
  13. ^ This article was originally published on InvestDiva.com (investdiva.com)

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