At the end of the month, while the indices are looking for each other more than anything else, Mathieu Lebrun returns to one of the pairs he had his eye on on the foreign exchange market: the dollar/yen pair, also symbolized as follows: USD/JPY.
I recently looked at the dollar/yen rates.
Even if in the end I did not make a trade, a little analysis does not seem devoid of interest to me as the recent behavior of the pair resembles a textbook case.
Why didn’t you go there first?
We had a greenback naturally supported by the rise in American bond yields (see that of the TNote, the American ten-year, which rose above 4.60%).
However, given the rate differential with Japanese paper (which historically yields almost nothing), we find ourselves in a classic case of “ carry trade », which explains the medium-term upward trend.
However, despite the interesting graphical situation of the prices which we will return to shortly after, one thing bothered me: the fact of being facing the Bank of Japan (BOJ).
Because Kazuo Ueda, the governor of the Central Bank of Japan, had not hidden his intention to act since the beginning of the month, by putting an end to his accommodating monetary policy.
If the last BOJ meeting had given birth to a mouse, an intervention finally followed at the start of the week.
Coming back to the situation of the pair, as we see on the first chart taken on a weekly basis below, against the Japanese yen, the dollar was moving in a broad structure in triangle very “clean” ascending (see gray rectangles + colored arrows).
By zooming out a little and this time switching to a daily view (below), we see that this structure was broken down into a “cup with handle” type diagram.
This type of configuration generally having a trend continuation role, a bullish exit was the most likely scenario (former trader William O’Neil commented extensively on the phenomenon in his book How to make money in stockspublished in the 1980s).
Here, the “cup” is located in the anterior hollows visible with my “V” in black, and the “handle” appears in the phase of consolidation short term flat type trading range on the right of the graph (see yellow circle).
The formation of this “cove” was almost perfect, as it was located just under the resistance horizontal of 152 JPY (see black dotted lines).
I say “perfect” because it is a healthy development, that is to say a phase of reflection of the courses which results in a compression of volatility. Type of structure which, once the exit has been made, often has the merit of impulsiveness.
And this has not been lacking, since since mid-April, the crossing of the said resistance was followed by an upward impulse towards 160 JPY yesterday morning in Asia.
And this is precisely where the Bank of Japan decided to intervene (see red crosses in the graph above).
Time will tell whether the BOJ will have the last word (or whether it will have to think twice).
But this little experiment nevertheless has the merit of demonstrating that the market of Forex full of opportunities…
