USD/JPY: where is my carry trade?
Hi everyone,
Since my last idea, a lot has changed. My swing target of 150 was reached, and buyers took over in December. Recently, USD/JPY hit a 6-month high of ~158.5.
Since that low at 150 in December we saw different major signals from UJ:
Chapter 1: Rising Distribution – Not Your Average Wyckoff
The distribution I am talking about is not the Power of Three or AMD distribution concept. For old school lovers, the distribution I mean is based on Wyckoff method. Wyckoff was an analyst who described the difference between trends and ranging markets way before traders had 3 screens with gradient indicators and fancy ways to detect the regime.
In his method, there is a thing called "distribution". It is when the institutions are fed up with the uptrend and want to sell an asset. This is also when the "buys" are transferred from institutional hands to our, normal traders, hands. How does it work? FOMO, news and herd instinct. This is where "don't stand in front of an ultra-fast train" fails.
Classic Wyckoff distribution: the point where institutions get off the train, and retail traders hop on thinking it’s express to the moon. Rising distributions happen when the crowd still expects an uptrend, but the big players quietly exit. Seems like they have another train plan. At least, that's what the volume delta says. :)
Chapter 2: The Macro Mix
US is strong. Still solid. Even with inflation and bubbles, USD rides high thanks to its post-WWII economic dominance. This allows US to export their debt until today. Debt, tech booms, and AI surges aside, the system holds.
We’ve swapped dot-com booms (2000 DotCom Bubble) for AI hype and NVIDIA super-processors. Just like the early 2000s with software, we’re seeing another leap, but with AI, robotics, and LLMs instead of spreadsheets and PCs.
I wont mention any other issues with US economy, you could read that in my previous idea, and Trump tariffs wouldn't help it either, so everything stays the same.
Another thing, but not only concentrated on US: wealth gap. Wealth gaps grow, and some of the folks that were living right in the middle, having more than enough, but not too much, are struggling financially now, or became rich and big. But blindly piling into assets isn't the answer. Markets shift, and the rich adapt.
If you want more insights about the wealth gap and how it may worsen the recession, check out the amazing videos from "Garys Economics". A former Citi bank top trader, Gary specializes in forex, especially Yen and Swiss franc.
Chapter 3: Yen vs. Dollar Carry Trade
The interest rate differential is narrowing. BoJ raised their rates for the first time since the '90s. Japan’s deflationary pressures pushed change. Sure thing Japan has to change something, and they did and will do.
Japan is still a tech and automotive powerhouse, but monetary policy is tricky. Wouldn’t a cheaper yen help exports? Its complicated. Dollar and euro is still doing fine, being ones of the leading currencies in the world and also leading in exports. I don't think that matters that much.
Now, zoom out of the chart. Historically, USD/JPY was 138–145 at similar USD rates. Add the new yen rate, and voilà: you get my 136–146 range.
-----------
Finalizing, USD/JPY is my muse. It is my main trading currency, maybe the only one. The a constant battle between east and west, logic and mystery is truly beautiful. Since Dec 19, it’s been weird for most of us.
Currently with AI surging in trading, we see companies fighting to find the alpha in the market. The strategy that will always work, the key to unlocking the market. This goes on for years and didn't start only now. Markets evolve, new players enter, and unexpected events (Black Swans) rewrite everything. Nevertheless, the "holy grail" strategy doesn’t exist (yet).
More and more AI models are flexible and need to be improved faster and faster. So should your strategy be, even if you are not an AI.
AI or not, adaptability is your true alpha. I’ve also updated my own metrics, ditched outdated ones, and embraced new indicators and models.
Learn some coding. Python, R, and Pinescript will be as essential as Excel soon.
You could also start with pinescript by editing your indicators/strategies in a way, that your ideas are implemented in it.
Never stop learning, even when it feels like the market is gaslighting you.
Navigate the markets like an explorer: decode shifting patterns and embrace the unknown future.
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Always perform your own analysis before making trading decisions.
Since my last idea, a lot has changed. My swing target of 150 was reached, and buyers took over in December. Recently, USD/JPY hit a 6-month high of ~158.5.
Since that low at 150 in December we saw different major signals from UJ:
- "When the last buyer died..." buyers volume spike on 19 of December. Healthy accumulation on 4 of December supported the rally, showing more love for the dollar than yen.
- "Heyyy, I know this thing—order block!" Post-Dec 19, price rose to 158.4 with waning buyer volume and mounting shorts. OB or just noise? Suspicious either way.
- "Is this still an uptrend?" Price action shows small but consistent higher highs/lows. Volatility indicators hint at rising consolidation.
- "Dollar supremacy forever?" Yes, dollar is stronger, but corrections happen. Whether at 70 or 175 USD/JPY, dollar will still be stronger.
- "BoJ wouldn't intervene before 160. Are they bluffing?" May be possible, but I doubt it. The finance minister concern was very high yen depreciation and they mentioned that "we wouldn't let USD/JPY reach 160". But Japan’s MO is more stealth than spectacle I think.
- Lastly, for my technical analysis lovers, pitchforks. Pitchforks are a more "hipster" way to draw trendlines. Maybe also more mathematical way. They are easy, but advanced pitchfork usage may be tricky.
As you see in the chart, we’re stuck between an upper bound and a demand zone. This supports my idea of consolidation, since the demand zone and the upper pitchfork are the current support and resistance. - Another one for tech analysis lovers. Elliott Waves. There is a possibility that we are in the so called "elliot correction waves", which is often seen after an uptrend. Leg A was the summer drop, leg B took us to 158.5, and leg C could dip us to 136–146. Probability? No idea, but the range fits the pitchfork, Elliott theory, and interest rate differential. Your guess is as good as mine.
Chapter 1: Rising Distribution – Not Your Average Wyckoff
The distribution I am talking about is not the Power of Three or AMD distribution concept. For old school lovers, the distribution I mean is based on Wyckoff method. Wyckoff was an analyst who described the difference between trends and ranging markets way before traders had 3 screens with gradient indicators and fancy ways to detect the regime.
In his method, there is a thing called "distribution". It is when the institutions are fed up with the uptrend and want to sell an asset. This is also when the "buys" are transferred from institutional hands to our, normal traders, hands. How does it work? FOMO, news and herd instinct. This is where "don't stand in front of an ultra-fast train" fails.
Classic Wyckoff distribution: the point where institutions get off the train, and retail traders hop on thinking it’s express to the moon. Rising distributions happen when the crowd still expects an uptrend, but the big players quietly exit. Seems like they have another train plan. At least, that's what the volume delta says. :)
Chapter 2: The Macro Mix
US is strong. Still solid. Even with inflation and bubbles, USD rides high thanks to its post-WWII economic dominance. This allows US to export their debt until today. Debt, tech booms, and AI surges aside, the system holds.
We’ve swapped dot-com booms (2000 DotCom Bubble) for AI hype and NVIDIA super-processors. Just like the early 2000s with software, we’re seeing another leap, but with AI, robotics, and LLMs instead of spreadsheets and PCs.
I wont mention any other issues with US economy, you could read that in my previous idea, and Trump tariffs wouldn't help it either, so everything stays the same.
Another thing, but not only concentrated on US: wealth gap. Wealth gaps grow, and some of the folks that were living right in the middle, having more than enough, but not too much, are struggling financially now, or became rich and big. But blindly piling into assets isn't the answer. Markets shift, and the rich adapt.
If you want more insights about the wealth gap and how it may worsen the recession, check out the amazing videos from "Garys Economics". A former Citi bank top trader, Gary specializes in forex, especially Yen and Swiss franc.
Chapter 3: Yen vs. Dollar Carry Trade
The interest rate differential is narrowing. BoJ raised their rates for the first time since the '90s. Japan’s deflationary pressures pushed change. Sure thing Japan has to change something, and they did and will do.
Japan is still a tech and automotive powerhouse, but monetary policy is tricky. Wouldn’t a cheaper yen help exports? Its complicated. Dollar and euro is still doing fine, being ones of the leading currencies in the world and also leading in exports. I don't think that matters that much.
Now, zoom out of the chart. Historically, USD/JPY was 138–145 at similar USD rates. Add the new yen rate, and voilà: you get my 136–146 range.
-----------
Finalizing, USD/JPY is my muse. It is my main trading currency, maybe the only one. The a constant battle between east and west, logic and mystery is truly beautiful. Since Dec 19, it’s been weird for most of us.
Currently with AI surging in trading, we see companies fighting to find the alpha in the market. The strategy that will always work, the key to unlocking the market. This goes on for years and didn't start only now. Markets evolve, new players enter, and unexpected events (Black Swans) rewrite everything. Nevertheless, the "holy grail" strategy doesn’t exist (yet).
More and more AI models are flexible and need to be improved faster and faster. So should your strategy be, even if you are not an AI.
AI or not, adaptability is your true alpha. I’ve also updated my own metrics, ditched outdated ones, and embraced new indicators and models.
Learn some coding. Python, R, and Pinescript will be as essential as Excel soon.
You could also start with pinescript by editing your indicators/strategies in a way, that your ideas are implemented in it.
Never stop learning, even when it feels like the market is gaslighting you.
Navigate the markets like an explorer: decode shifting patterns and embrace the unknown future.
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice. Always perform your own analysis before making trading decisions.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.