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December 9, 2015

USDJPY – Trade and Earn

The liquidity and volatility of USDJPY offers traders plenty of trading opportunities they can exploit. Learn more about the USDJPY currency pair.

The USDJPY is the second most liquid currency pair, behind only the EURUSD. The Japanese yen is the most liquid currency in Asia and it is usually used as a form of proxy for the entire Asian economic growth. Price fluctuations in the pair are usually influenced by monetary policies of both the United States and the Japanese government.  

Understanding the USDJPY

Japan is one of the world’s largest net exporters, with exports accounting for 40% of the country’s GDP (gross domestic product). For this reason, the Bank of Japan (BoJ), which is the country’s central bank, has been pursuing an easing program that will continue to boost the performance of the Asian giant exports in the global markets. With a divergent monetary policy being pursued by the US, the USDJPY has been in a strong uptrend for months now.  

The USDJPY is also a very politically sensitive pair. The Bank of Japan is notorious for market intervention and traders should always track announcements from the Bank’s officials as well as periodic interest rate decisions.  In addition, the USDJPY is also sensitive to oil prices because of the numerous industries that support its export driven economy. The value of the yen tends to rise when oil prices depreciate and vice versa. 

USDJPY General Price Behaviour 

The USDJPY usually has unique characteristics that make it a favourite asset for most traders. This currency pair usually tends to oscillate systematically between periods of high and low volatility. The prices of this pair will usually move sideways for some time before breaking and trending strongly towards one direction. This gives traders the chance to make money in different market conditions that are usually easily identified on the pair. In recent history, the pair has shown to range between 85 and 130. Thus, at any given time, the price will be trending towards either 85 or 130 if the market is not ranging.

USDJPY Fundamental Outlook

The USDJPY is currently being boosted by investor sentiment, particularly the expectation that the US Federal Reserve will hike interest rates before the end of the year. Despite this, the USDJPY has failed to post any significant rally towards the psychological support of 125. This is because there were mixed economic data reports from the US last week. Good employment figures contrasted the less-than-expected consumer spending and retail sales data. This made the currency pair end the week slightly lower at 122.54 from a high of 123.55. However, this week, there is a string of data that will likely increase volatility on the pair.

The preliminary GDP report has already been released and it showed that Japan’s economy contracted by -0.2% in the third quarter of 2015 compared to market expectations of -0.1%. This is likely to put pressure on the yen (JPY) and trigger gains on the USDJPY pair.

Other major economic data traders should watch out for include:

Trade Balance

This figure, although likely to have minimal impact, will give investors clues on how the Japanese economy will likely perform going forward. So far, the monthly trade deficit has been steady following two consecutive readings of JPY -0.36 trillion. However, the markets are now expecting the October deficit to slightly widen to JPY -0.38 trillion. The report is scheduled to be released on 18th November, 2015 and traders should watch out for it.

BoJ Monetary Policy Statement

This is the most important economic event relating to the USDJPY pair this week and it is scheduled for the 18th of November, 2015. The Japanese economy has performed sluggishly and there have been a string of bad economic data from the country recently. Factor in the current minimal inflation and there is immense pressure on the Bank of Japan to increase stimulus. If this happens, the USDJPY will find the necessary impetus needed to take out the psychological resistance of 125. A neutral stance from the BoJ, however, will likely push the pair lower where support can be found at around 120.

USDJPY Technical Outlook

The current price of the USDJPY is 122.80. Since forming a temporary bottom at 118.05 in mid-October, the pair has been trending higher smoothly. The pair briefly found resistance at 121.35, which corresponds with the 200-day moving average. However, this resistance was breached successfully at the beginning of this month which pushed the pair to a high of 123.55. The pair is currently drifting lower but lacking the momentum to suggest that a downtrend is now in place. The current move looks like a retracement and it is likely that the uptrend will resume pushing the pair towards its psychological resistance of 125.

USDJPY Trading Plan

The current uptrend in the USDJPY offers traders an opportunity to book amazing profits. The uptrend is fuelled by market fundamentals as well as a great technical positioning of the pair. The logical way to profit from the USDJPY currently is to take a bullish bias on the pair. One of the best ways to do this is to trade the USDJPY on the platform of a binary options broker that offers Ladder option contracts. These contracts allow traders to book enhanced profits if an asset they are trading achieves multiple directional price targets. It would therefore be wise to trade the USDJPY Ladder option by placing bullish price targets on the currency pair.    

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle

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Item Reviewed: USDJPY – Trade and Earn Rating: 5 Reviewed By: Econ Matters