Talking Points:
- Japanese Yen (JPY) moves from the weakest to the middle of the pack in possibly a trend change move
- USD to Yen price pattern suggests lower lows in the weeks ahead
- Buy Japanese Yen Currency Basket (enroll for demo account at the same link)
When analyzing the pricing of several currency pairs in relation to their 200 period simple moving average on a 4 hour chart, many of the prices are in the neutral zone. The neutral zone means the prices are close to this trend defining moving average level. Therefore, some of the trends of calendar year 2013 are at risk of reversing.
Using the strong weak analysis below, it appears the Japanese Yen has strengthened considerably in the past couple of weeks and patterns suggest Yen strength may be around for the weeks ahead. These are our two reasons for wanting to buy the single Yen currency.
As a result, we will look to buy the Japanese Yen against a basket of currencies using the Mirror trader platform.
Forex Strategy: Matching Strong versus Weak
| Currency | Up Arrows | Down Arrows | Change From Last Re p ort |
|---|---|---|---|
| NZD | 7 | Higher 3 rankings | |
| GBP | 5 | 1 | Lower 1 ranking |
| EUR | 2 | 1 | Lower 1 ranking |
| USD | 2 | 2 | Lower 1 ranking |
| AUD | 2 | 2 | Higher 3 rankings |
| JPY | 2 | 2 | Higher 4 rankings |
| CHF | 1 | 6 | Lower 2 rankings |
| CAD | 7 | Lower 2 rankings |
Chart created by EDU Robert Warensjo
According to our Strong/Weak analysis and resulting chart above, the Yen has increased four positions higher from the weakest currency to the middle of the pack in the past two weeks. This large move could be indicative of at least a temporary trend change for the Japanese Yen suggesting the Yen may further strengthen.
In fact, we previously wrote about two patterns in the USD / JPY pair that suggest deeper retracements lower may be on the horizon for the pair. The pair has currently stayed below 106 resistance leaving the two patterns in place as a possible explanation for the move.
Executing the Trade
Since we anticipate the JPY may experience a broad based rally, we will take a diversified approach and buy the single currency against a basket of currencies. There are several advantages to trading a currency rather than a pair with the largest benefit being diversification.
We will initiate a JPY Buy Basket trade through the Mirror platform. You can even try this out in a practice account at the same link above.
We will look to risk 2.0% on the trade for a minimum profit objective of 4%.
Good luck with your trading!
---Written by Jeremy Wagner, Head Trading Instructor, Education
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