Opportunity to trade long JPY across other G7 currencies
Dow theory says the market is in a trend if a certain number of features are present, one of those is that a number of similar markets are all moving in the same direction.
This is the case for the Japanese yen and so, seems to be setting up for further moves, in this case up. IGTV’s Jeremy Naylor looks at shorting EUR, USD, GPY, AUD and CAD versus JPY.
(Video Transcript)
JPY
Now, one of the functions of the weak USD is that we've got money going back into the JPY, which is going to help the Japanese authorities considerably. If you look back to Dow theory, one of the tendencies is that markets across the range need to be moving all in the same direction to bring about a trend. And this is the case for the Japanese yen. We see money going into the yen against the whole basket of different currencies.
Let's begin, first of all, with the big cross, which is the dollar trading against the Japanese yen. See, quite clearly, this market is on the way down. This means that we should be long on Japanese yen. But in this case, because the dollar comes first, it's the short-trade dollar against the yen.
JPY price action
And you can see here that we passed below the 61.8% retracement on this step from the lows that we had back on the 1st of June at the total retracement down at 3843. Now, for all of these trades, because this is a trend in place, you need to put your stop titling around the top of recent price action.
So in this case, your stop would be just about the 142 level with a view to taking it down to 1/41 of all, and then possibly the type of retracement down to 3843. You ought to be long the yen as well against the euro. This is the euro short against the yen.
Now this fib here is from the lows we had back at one 4613. In fact, you could bring that up to get a little bit of a closer trade here. So your price target in this situation would be 5508, which is where we are. Stock goes above the 156 level with a view to taking that market down to 5224, 61.8%. Retracement with the euro short against the Japanese yen, but we are long the yen against a whole basket of currencies.
G-7
Is sterling down against that stronger Japanese yen, and if you go across the G-7, you can see that it's repeated across the board? This makes the CAD weaker against the Japanese yen as well. So as I said, the Dow theory does rely on a number of markets moving in the same direction.
That's exactly what you got here. If you're a foreign exchange trader, it's long yen against the whole basket of other G-7 currencies.
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