USDJPY trades to the highest level since 2002 The USDJPY is trading higher once again today and in the process has blown through the June 2015 high at 125.86. That puts the price at the highest level since May 2002 nearly 20 years ago (see weekly chart above). My USDJPY charts are running out of history. I have the May 6 week swing high up at 128.920 and that’s it. There remains some room between the current price at 126.46 and that 128.92 high, but not much. Driving the move higher is central bank rate policy. The Fed is intent on a series of tightenings to get back to the neutral rate (at least) at around 2.50%. The BOJ is happy to keep the status quo and in fact are looking to limit the moves in their yields via purchases. That dynamic has led to a surge in yield spreads between the US and Japan. Looking at the 10 year yield spread below, the spread between US 10 year yields and Japan 10 year yields has widened to over 250 basis points from about 153 basis points on March 7. Note the yield spread basing against its 100 day moving average back in early March before moving to the upside. The US 10 year to Japan 10 year yield spread Over the same period, the USDJPY has moved from around 114.82 to the high today of 126.68 or 1186 pips (10.32%). Also note how the USDJPY based against its 100 day moving average back in early March before moving to the upside. USDJPY has searched since basing against its 100D MA Those are big moves. However, with inflationary pressures still not fully resolved (commodities are still relatively up there with oil back at $106 after trading at $93 on Monday, natural gas at highest level since 2008, corn at highs since 2012, wheat moving back higher and soybeans also elevated, etc), and employment at or near full employment levels, the fear is the trend has the possibility to continue (in spreads and in the USDJPY’s move). When you trade at such extremes, it is hard to grasp on to targets on the topside. However, where there’s a will there’s a way. Traders also get suckered into the idea that “the market is way overbought”. My responses is been way overbought for a while, and traders who have sold are likely losing money. The better tact for traders is to say, “The market overbought, but sellers have to prove that they can take back control.” How can they do that? Looking at the hourly chart below, the price high from Wednesday’s trade reached 126.31. A move back below that level and staying below that level would give sellers a level to lean against. USDJPY is overbought but that trend can continue Alternatively, the rising 100 hour moving average currently at 125.684 would be a another level to get to and through, an increase the bearish bias in the process. Yesterday, the price moved down to test that 100 hour moving average (see blue line in the chart below), and although the price did dip below the moving average line it was only by a few pips before the price rotated back to the upside. Sellers who still below the level would likely covering on the move back above the level when momentum started to develop. Nevertheless moving below the 100 hour moving average would be indicative of potentially more corrective downside probing from the overbought conditions. What about the upside? Can traders target a level to lean against on a run further to overbought level on the upside? Looking at the hourly chart above, connecting the highs from the week on Monday and again on Wednesday, the upward sloping trendline cuts across currently at 126.96. That level is close to the 127.00 natural resistance level. Sellers looking to pick a top could lean against that level with stops on a break above. At least risk is defined and limited. What I don’t recommend is doing trade “just because the price is high”, and not having a risk defining level like the 127.00 level. Trends are fast, directional, and tend to go farther than traders expect. Also the most money is lost in trending markets. So avoid trading against the trend unless you have real technical reasons i.e. like the reasons outlined above with risk defined. Selling simply because the price high and “overbought” is not an option. Overbought in a trend market becomes more overbought as the market continues to trend.Continue Reading
Source:By Forexlive