USD JPY - long term opportunity
Updated
Im in deep trouble and need your advise.
I have been following a trade for a while and felt it was the good time to enter, but I'm having doubts and felt like sharing to get your views!
I am going to get through different points, and I am just supposing, I never have the right answer, I like to think that I just increase my probabilities of being right: so be careful with your money and do your due diligence before investing ;)
The strategy is the following:
Understand the fundamentals that drive long term trends
Understand technicals to enter at the best moment
1. Fundamentals
Monetary policies: The FED has started reducing its balance sheet and will soon be forced to raised rates after having waited far too long. Abenomics will make sure that the Japanese reluctant inflation is back at its target before raising rate (Thought now standing at 1% for December, highest since march 2015!!) I believe that if inflation is really back to the 2% target sooner that later then the Japanese central bank will be so happy that their plan has finally worked that they will leave rates low for another year or so before rushing anything. I think that the US has 2-3 years advance in terms of reducing the money supply compared to Japan (and Europe too - same story)
If rates increase, US treasuries increase, and people buy USD dominated bonds.
A healthy full employment and historically low unemployment level supports an increase in wages, which would support a higher inflation. The FED would need to control it by raising rates, but they have always been late at moving rates, and they might need to rush things.
I like to think very long term, imagining that I can invest for 10 years without touching; it is very hard to predict long term waves, but their is this theory that I first read about in 2013 in uni: The Kondratiev wave/cycle (or The dooms story for the US... Crazy right!).
For the last thousand years economies have followed cycles of forty to sixty years, alternating intervals between high sectoral growth and intervals of relatively slow growth each attributed a different growth and levels of inflation. In addition, the structural changes that happened in the last 50 years - ending with the internet of things and cheap labor in China - supports the theory of returning inflation. If, like me, you are not in your 50's, we are going into unknown territory! I think we have ended the structural disinflationary cycle, with the arrival of Trump and the emergence of China as supper power: Rates are going up. As justified by the 10Y treasuries which today stand at 4 years high.
This is the beginning of a bear market for bonds: but the dollar will be strong, at least for the medium term (1-2 years), the us economy is strong and people will want yield that they do not have elsewhere..
So this looks pretty clear, the problem is the following: has the political Trump-Macron frenzy pushed the USD into collapse already or is this just an nice opportunity and an oversold situation?
It does look like economically the US is 1-2 years ahead of Japan (and Europe), but is loosing on all grounds against China. 43% of global growth in real gdp, between 2017-2019, is expected to come from China and India together, with the US falling behind China by 2025.
2. Technicals
So now, why is the chart alarming...
Because if all what I describe does not hold then the USD is going for an ugly ride - this year has already been bumpy, last time I checked the GBP was catching up on pre-Brexit level..
First the 1W candlestick, most probably a break to the upside in August 2014. which then sent the Yen to 126 in 2015, to then enter a triangular consolidation with a higher low at 99 in 2016, where resistance became support.
I have been following a trade for a while and felt it was the good time to enter, but I'm having doubts and felt like sharing to get your views!
I am going to get through different points, and I am just supposing, I never have the right answer, I like to think that I just increase my probabilities of being right: so be careful with your money and do your due diligence before investing ;)
The strategy is the following:
Understand the fundamentals that drive long term trends
Understand technicals to enter at the best moment
1. Fundamentals
Monetary policies: The FED has started reducing its balance sheet and will soon be forced to raised rates after having waited far too long. Abenomics will make sure that the Japanese reluctant inflation is back at its target before raising rate (Thought now standing at 1% for December, highest since march 2015!!) I believe that if inflation is really back to the 2% target sooner that later then the Japanese central bank will be so happy that their plan has finally worked that they will leave rates low for another year or so before rushing anything. I think that the US has 2-3 years advance in terms of reducing the money supply compared to Japan (and Europe too - same story)
If rates increase, US treasuries increase, and people buy USD dominated bonds.
A healthy full employment and historically low unemployment level supports an increase in wages, which would support a higher inflation. The FED would need to control it by raising rates, but they have always been late at moving rates, and they might need to rush things.
I like to think very long term, imagining that I can invest for 10 years without touching; it is very hard to predict long term waves, but their is this theory that I first read about in 2013 in uni: The Kondratiev wave/cycle (or The dooms story for the US... Crazy right!).
For the last thousand years economies have followed cycles of forty to sixty years, alternating intervals between high sectoral growth and intervals of relatively slow growth each attributed a different growth and levels of inflation. In addition, the structural changes that happened in the last 50 years - ending with the internet of things and cheap labor in China - supports the theory of returning inflation. If, like me, you are not in your 50's, we are going into unknown territory! I think we have ended the structural disinflationary cycle, with the arrival of Trump and the emergence of China as supper power: Rates are going up. As justified by the 10Y treasuries which today stand at 4 years high.
This is the beginning of a bear market for bonds: but the dollar will be strong, at least for the medium term (1-2 years), the us economy is strong and people will want yield that they do not have elsewhere..
So this looks pretty clear, the problem is the following: has the political Trump-Macron frenzy pushed the USD into collapse already or is this just an nice opportunity and an oversold situation?
It does look like economically the US is 1-2 years ahead of Japan (and Europe), but is loosing on all grounds against China. 43% of global growth in real gdp, between 2017-2019, is expected to come from China and India together, with the US falling behind China by 2025.
2. Technicals
So now, why is the chart alarming...
Because if all what I describe does not hold then the USD is going for an ugly ride - this year has already been bumpy, last time I checked the GBP was catching up on pre-Brexit level..
First the 1W candlestick, most probably a break to the upside in August 2014. which then sent the Yen to 126 in 2015, to then enter a triangular consolidation with a higher low at 99 in 2016, where resistance became support.
Note
On the 1D candlesticks, it looks like a cup + head and shoulders formation if we hold this level. If we make new lows, then we enter a serious downtrend. But if it holds, we should see it make higher lows through 2018 till it breaks to the upside, with very solid support here around 109. To then push to 118 and then 125.
Indicators are positive, we are oversold on the RSI14 1D, making higher low with stronger sales (which puts support for the short term)
MACD looks ready to make a crossing.
Stop-loss @ 107.25
(Short term trade target @ 112.60 (30% of position) to reduce over exposed position due to recent increase in cash in my portfolio)
2nd target 118.25 (60% of the remaining)
3rd target 124.85 (the remaining)
I think thats it, not even enough place..! Let me know what you think and I hope you liked the reading.
And last word, raise some cash on the short term :)
Note
Sorry for previous link... starting with trading view
Note
Lets have a closer look at this chart and breath a bit!The market is reacting to a surge in rate and as expected the dollar is starting to get traction.
I hope the chart is self explanatory but I will try to put it in writing:
- We have reached deep oversold compared to previous level but we have made a higher low.
- As predicted, MACD is crossing.
- If we confirm the head and shoulder we should break the long term resistance. In that case, what ever pull back is an opportunity to buy.
- Then we will have another level of resistance and another pull back confirming the cup and handle.
Get some profits (50%) @ 112.30
Reload x3 @ 109.5
Buy anytime @ 113.5 and hold till 118.30
Should will leave us some time to see how inflation picks up in Japan and how things unfold in the US.
I strongly believe that the Treasuries are just going to shoot up to 3.5% before we know it, and that after the breach of the long term resistance we will see a strong jump!
Raise cash
Trade closed: stop reached
stop @ 107.20 reachedI believe this breach is a major indicator of switch in sentiment than will send the dollars to fresh lows.
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.