USD/JPY – hiding in plain sight

Some of the best trades are so obvious they’re overlooked. And buying the USD as the Fed heads toward a December rate hike may be one of them.

I’m not renowned for my general observation skills. My girlfriend often jokes that if she wants to hide something, she’ll put it right in front of me. Similarly some of the best trades are so obvious they’re overlooked. And buying the USD as the Fed heads toward a December rate hike may be one of them.

The daily chart of USD/JPY is clear. From December 2015 the pair traded downward. That downtrend is now over, with a bottom in place at 100.00. The recent move over 104.50 made a higher intermediate high, confirming an intermediate up trend. Given the shifting interest regimes in the US and possibly Japan, this may become a long term up trend.

PMIs this week confirm the ongoing pick up in US activity in both manufacturing and services. Barring a disaster, the Fed will lift the cash rate in December. Market pricing now reflects a probability around 75%, and ten year bond yields are marching higher.

Any USD rise is unlikely to occur in a straight line, but the fundamental and technical factors may mean a swing trade is in order. Using a smaller position size, I’ll buy at current market levels with a stop loss at 103.85. My target is 119.20. Yes, 119.20. Of course, the time frame for this trade is measured in weeks and months, not hours and days.

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