Chart Of The Day: Is The Yen’s Safe Haven Status Back?

The to raise rates today in what is all but a foregone conclusion, which will lead to profit-taking for bulls. As well, President Donald Trump’s rhetoric yesterday at the UN suggested he’s intent on doubling down on his China trade policy, another potential sign of future trouble for dollar bulls.

Ever since the trade dispute took to headlines in March, the dollar has replaced the Japanese as the go-to, safe haven currency. However, despite the dollar’s near-term strength, with today’s hike and a possible fourth rate rise on the horizon in 2018, the USD may not have much more room for growth.

Should the yen reclaim its haven status, and the dollar return to its previous status as risk currency, we might witness a vicious cycle of investors seeking shelter from trade headwinds. The reality is that the yen’s recent strength seems to be signalling that investors are already seeking shelter.

USD/JPY Daily Chart

USD/JPY Daily Chart

Since its July 18 peak of 113.16, the dollar has been falling against the yen, potentially developing a double-top reversal. Another fact that reinforces this risk is that Treasury yields are forming the same potential pattern. This development simultaneously serves as confirmation of investors’ outlook as well as contributes to the scenario where traders are rushing back to the yen instead of the dollar.

The 200 DMA has converged with the double top neckline and the 100 DMA marks the uptrend line since the double top, the August trough below 110.00. Both the MACD and the RSI are slowing down and turning down, demonstrating that both a comparison of price averages and momentum is pointing lower.

Trading Strategies – Short Position Setup

Conservative traders would wait for a decisive downside breakout of the neckline below the 110.00 psychological level.

Moderate traders may short for the potential decline toward the neckline, after bearish confirmation, with a close below yesterday’s low of 112.74 and/or sell signals from the MACD’s shorter (blue) MA crossing below its longer (red) MA and the RSI’s crossing below its uptrend line since Monday before last below the 60.00 level.

Aggressive traders may short now.

Aggressive Trade Sample

  • Entry: 113.00
  • Stop-loss: 113.25
  • Risk: 25 pips
  • Target 1: 112.25, above August 1 support = 75 pip-reward, 1:3 Risk-Reward Ratio
  • Target 2: 111.00, 100 DMA (red) support = 200 pip-reward, 1:5 Risk-Reward Ratio
  • Target 3: 110.00, August 21/neckline Support = 300-pip reward, 1:6 Risk-Reward Ratio

Moderate Trade Sample

  • Same as aggressive trade, except entry upon bearish confirmation. Then, moderate traders may wait for a return move to the resistance for a better entry or tweak the risk-reward ratio accordingly.

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