Thursday, 29 October 2015

USDJPY Short for 120

After the Fed minutes on Oct 28th, which confirmed the US rate at 0.25% for another couple of months, there was a sharp spike in the USDJPY pair. However, within hours this had retraced by 50%, before starting to climb again. I notice however that in the last few hours the pair has stalled.
Applying parallel tramlines to the last few day's price action explains this, and the pair appears to be at the top of a gentle downtrend.

The setup has an excellent risk/reward ratio if my hypothesis is correct, a very tight stop just above the Fed spike high, and a potential reward down to below 120. No point being greedy, as the Fed news spiked down to 120, that is a good point now for a profit target.
Accordingly I have shorted 3 contracts of USDJPY as follows
Entry  : 121.144, Stop loss : 121.280, Target : 120.000, Risk/reward 1144:136 = 8.41:1
I have taken three time my normal size because the risk is only 13.6 pips, much smaller than usual.
The USD should not be rising if there is no rate rise. There were no hints of one in the Fed statement, and CME trader views are divided as to a December rise, as per this chart 

I am therefore confident that USDJPY will return to it's 2015 median of around 120.

Note also that dealer commitment is also on the short side (the CFTC table quotes the pair in reverse)

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