Upon the final shedding of its skin and prior to the final stage of its transformation into a butterfly, the caterpillar enclosed itself in a hard shell called chrysalis. The presence of chrysalis indicates a paradigm shift in the life of a caterpillar into an adult butterfly.
In financial market, a fundamental change in trend often do not come with a warning label or clear indication. In fact, more often than not, we only saw small indications that add up over time into an explainable “story” on why a particular trend is nearing the end of its life.
That said, today, I want to talk about USD/JPY pair as shown on chart below:
This chart is showing a 10-years weekly USD/JPY pair dating back to 2005. The price this pair is currently trading is at around 8 years high and I am currently looking to short the pair around 123.50 to 124 region. No, I am not saying the pair must go down around this level but I do think this level makes sense for it to start reversing as there is a major resistance around 124 level. As with any of our counter-trend trades, we only enter small starter position at first while gradually building up the position if it went the wrong way.
This trade is actually just a microcosm of a bigger short USD trade that I am currently preparing across the board. If we look at the /DX Futures (US Dollar Index), it is extremely stretched and there’s a good resistance around 98. Not to mention that /ES Futures (S&P 500 E-Mini) is at all time high. Additionally, US Nonfarm payroll number has been revised downward for 3 months in a row (among other internals) which makes me a little uneasy about the dollar strength at this point in time. All these “small” indications make me incline to say that there might be a change in USD trend for 2015.
The potential risk here is BOJ. If they decided to continue with their weak Yen policy, then we will be looking at USD/JPY going to 130 or even higher.
Currently, I am planning the following:
- Short USD/JPY & USD/CAD
- Long GBP/USD, AUD/USD, EUR/USD (maybe)
Update on our account:
Current open position: Short AUD/JPY from 95.501
Additionally, I have a pending to open Short USD/JPY at 123.50 and Long GBP/USD at 1.510
Now, while I do not know when exactly we will enter these trades, I am under the assumption that we will start loading up starter positions in early June at multiple entry levels determined by our TNS System. I might make a blog post explaining my reasoning but more likely it will be on Twitter!
That’s it for today and happy trading everyone!
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