Before this I mention that USD/JPY’s
tendency to either be active directionally or consolidating - the on/ off
switch. As such, we like to approach USD/JPY on a more strategic, hit-and-run
basis - getting in when we think a directional move is happening and standing
aside when we don't. We look for breaks of trend lines, spike reversals and
candlestick patterns, as our primary clues for - spotting a pending directional
move.
On the tactical level, USD/JPY is
generally a cleaner trading market than most of the other majors, so I like to
approach it with generally tighter trading rules. The idea is that if I’m
right, we’ll be along for the ride. But if I’m wrong, we jump off the bus at
the next stop.
Actively
trading trend-line and price-level breakouts
One of my trigger points for
jumping into USD/JPY is breaks of trend lines and key price levels, such as
daily or weekly highs/lows. Earlier I said that it usually takes a significant
amount of market interest to break key technical levels. We look at the actual
breaks as concrete evidence of sizeable interest, rather than normal
back-and-forth price action.
Jumping
on spike reversals
After USD/JPY has seen a
relatively quick (usually within two to three hours) move of more than 70 to 80
pips in one direction, we’re on the lookout for any sharp reversals in price.
Spike reversals of 30 to 40 pips that occur in very short timeframes (5 to 20
minutes) are relatively common in USD/JPY. But you pretty much have to be in
front of your trading screen to take advantage of these, because they’re a
short-term phenomenon by their very nature.
Monitoring
EUR/JPY and other JPY crosses
USD/JPY is heavily influenced by
cross flows and can frequently take a back seat to them on any given day. In
evaluating USD/JPY, we always keep an eye on the JPY crosses and their
technical levels as well. A break of important support in GBP/JPY, for
instance, could unleash a flood of short-term USD/JPY selling, because GBP/JPY
is mostly traded through the dollar pairs.
EUR/JPY is the most actively
traded JPY cross and its movements routinely drive USD/JPY on an intraday
basis. Be alert for when significant technical levels in the two pairs
coincide, such as when both USD/JPY and EUR/JPY are testing a series of recent
daily highs or lows. A break by either can easily spill into the other and
provoke follow-through buying/selling in both.
