Trade idea: long USD/JPY ahead of Japan data
The week starting Monday 26 February sees four main data points for the Japanese economy and the risk may be on the down side for the yen.
The data, all for January, includes consumer prices on Tuesday, industrial production and retail sales on Thursday, and Friday sees jobs data published. With the markets expecting the BoJ to start restricting monetary policy in April, the data will have to fully reinforce the belief that the strength is there. IGTV’s Jeremy Naylor says the markets have already been disappointed once, having seen the BoJ meeting in January come and go with no hint of any tightening, so what’s changed? If the data does continue to show a softness the BoJ will have no alternative than to push the date out again to bring in a more restrictive monetary policy. If this does come to pass, is this another shorting opportunity for the yen?
(AI Video Summary)
BoJ may implement stricter money plan in April
In this "Trade idea" video, Jeremy Naylor believes that there could be a good trading opportunity in the upcoming week based on some data from Japan. He thinks that this data will show that the Bank of Japan might start implementing a more strict money plan in April. He mentions that this plan was supposed to start in January but got delayed to April. If the upcoming data is not as good as expected, the Bank of Japan might delay the plan even more. Because of this, Naylor suggests shorting the Japanese yen.
USD/JPY trading outlook
Naylor mostly talks about the trade between the US dollar and the Japanese Yen (USD/JPY). He uses a chart to show how the dollar has been getting stronger compared to the yen over a long period of time. He points out a level on the chart at 150, where the Bank of Japan has previously intervened to make the yen stronger. He say that if the USD/JPY trade goes above 151.95, it would be a big deal because it would take them back to the levels of June 1990. He believes that if the upcoming data is not good, it could make the dollar even stronger and push the trade past this level. Naylor advises buying the dollar against the yen and also suggests looking at similar trades against other currencies like the British pound, the Australian dollar, and the euro, as long as they are against the yen.
To manage the risk, Naylor suggests setting a stop loss below the important level of 150 and setting a price target at 150.195. He's basically waiting for the data release next week to confirm this trading opportunity for a long dollar-yen trade.
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