BREXIT GBP: USE USDJPY AS A RISK-BAROMETER & WAIT FOR LONDON 8AMIndicators to check BEFORE GBP Shorting for confirmation
I also suggest using two other key pieces of information BEFORE shorting GBP.
1. Use USDJPY as a measure of market risk appetite and stability
- As you can see below UJ has traded with a tight 38pip range vs GBP$ at 180pips. Therefore we can use UJ as a measure of stability and risk appetite:
1) because of its stability - UJ isn't acting as susceptible to the volatility "noise" - with 4.5x less range; and
2) because as we know UJ is the "safe haven" FX pair which is sold massively when markets are trading risk-off. or risk averse.
- How to use UJ for GBP direction: Assuming UJ is the stable measure of risk (which has been true for the past week) it is fair to ALSO assume:
1) A rise in UJ means increased JPY selling which means there is a stronger risk-on attitude in the market as investors shed "safe yen" - buying GBP in the uncertain BREXIT environment IMO is considered the "risk-on" move - SO we can confirm GBP rallies with a rise in UJ
2) Conversely a fall in UJ means JPY buying, which means investors are seeking risk-off/ safer currency plays - selling GBP in the BREXIT uncertainty environment IMO is considered the "risk-off/ low risk" move - SO we can confirm new GBP shorts with a fall in UJ
*If you believe that the risk-on/ risk-off moves are the other way round e.g. GBP upside is the low risk play - then you can STILL use UJ as the indicator, just the other way around than above.
IMO and logically, GBP lower in this uncertain UK environment is the LOW RISK trade - especially given we traded at 1.46 8wks ago (not much downside is priced at these levels thus GBP moves lower are lower risk)
2. Wait for London open between 8am-10am GMT (4-6 hours from now)
- In these past weeks, the London open has been a key catalyst for GBP direction ESPECIALLY on the Sunday-Monday Asia which over as all of the weekend information is priced in for the biggest FX clients in LDN.
- Therefore it is prudent NOT to take a position until the big money volatility/ fluctuations/ noise is out of the way otherwise SL's may be susceptible to being hit AND MORE IMPORTANTLY, we may misjudge the market direction/ sentiment (given LDN is the largest FX Flow session).
- Several times the market direction and momentum has changed or been confirmed aggressively during the London open 8am-10am GMT so I think this indicator is a vital determinant
Risk-appetite
Nice Risk Reward on U/J Well last night U/J broke below a support zone, and is now retracing , looking to go short at 118.85-.90 with a stop at 76.4% Fib. If 76.4% is broken I will be looking for long opportunities but for now U/J is still a sell for me personally. Profit target at the 161.8% extension zone. Market sentiment supports xxx/JPY shorts with US treasuries dipping below the 2% Yield rate so sentiment has definetely been risk off this week, many factors are to blame for the risk off sentiment, EU QE speculation, US rate hikes, Oil moving lower, Greece, etc. (Yen is a quote on quote safe haven currency) There is also, Japanese fundamentals supporting temporary Yen strength having to do with their year end/new year business cycle, I would go into detail on that but I have not researched it thoroughly enough to go on writing about it. Risk/Reward meets my guidelines at roughly 1:8 . There are US economic data coming out, of medium impact during today's sessions. So just a heads up to keep an eye on that. Happy trading =D
SHORT USD/JPY. YEN PAIRS MAY CRASH STRONGLY. HERE'S WHY1) SP500 on ALL TIME HIGHS, MEGAPHONE pattern, GLOBAL RISK OFF
2) Investors confidence extremely BULLISH
3) YEN INDEX is technically EXTREMELY OVERBOUGHT, ABOVE 2 STANDARD DEVIATION BOLLINGER BANDS on daily basis
4) USD is EXTREMELY OVERBOUGHT aswell as US growth has been EXAGGERATED. Wage growth is WEAK, and INFLATION EXPECTATIONS are really WEAK, so FED won't raise rates until 2016 or later against market expectations of June-September 2015. When market adjusts to this new reallity, USD will crash heavily.
5) Non-commercial longs for DOLLAR INDEX at IMM/Chicago Futures Markets are at multiyear highs. Market is EXTREMELY LONG USD, which implies huge asymmetrical risks for USD. Any BETTER than exp data will barely push USD up, but any WEAKER than exp data will damage severely bullish USD trend.
6) China data is WORSENING and WORSENING everday, trade balance weakens, inflation weakens, it won't take much time till market aknowledges that global growth is really SCREWED (+OIL on multiyear lows, indication of low growth) and sooner than later this will spread PANIC amongst market participants causing global RISK OFF.
This is why in my honest opinion, there is a lot of RISK/REWARD on shorting specially USD/JPY and ris appetite driven pair AUD/JPY.
Tip: Don't wait to market crash to get into this trade. Do it now, when close to all time highs on SP500/Nasdaq, and synthethic YEN INDEX, where decision for exiting shorts is easy.