Trading JPY – When Short Turns Long

If you’ve been trading the Japanese Yen (JPY) alongside me these past few months,  I’m sure that you agree….the currency has been a real friend. The steep and steady slide of JPY over the past few months has made for some excellent trade opportunities – for that I am thankful.

Once you’ve tracked and traded a currency this tight, for an extended period of time – you really start to get a feel for its movements. What time of the day holds action, when to sit out, when to step on the gas, or when to sit back and enjoy the ride. By now you’ve got 8 million horizontal lines of support and resistance drawn at levels you’ve now come to know in your sleep. You are now….one with Yen!

As we know nothing moves in a straight line, and no currency exists in a vacuum so….at some point the tides change and your “easy ride down” morphs into some “bumpy days sideways” until finally a correction “upward” is due.

Taking into consideration that JPY is still very much so considered a safe haven currency (as we’ve been over  – with Japan holding the majority of its debt domestically), coupled with current fundamentals shifting  “towards” risk off behavior I feel the time is coming very soon to flip this one upside down – and start looking LONG JPY.

For me this would manifest in taking “short positions” in AUD/JPY, NZD/JPY,CAD/JPY and possibly several others as markets continue across the top before making their move lower.

Bernanke is on deck for Wednesday with the FOMC minutes being released so…I imagine he’ll want to talk it up that QE is right on track and set to continue. This along with the current fluster of information out of the EU Zone makes for a pretty tricky couple days. I will be monitoring and watching all my previously drawn lines of S/R as they will all just get hit again on the upside.

In this case I am considering that buying JPY will align with “risk off coming into markets” for those of you looking to line up the fundamentals. JPY is a safe haven and is likely “bought” in times of risk aversion.

24 Responses

  1. Nfxtrader March 18, 2013 / 3:38 pm

    Thx Kong. Are you planning to put limit orders on the way down? So when markets move down they hit your orders and you are along for the ride?

    • Forex Kong March 18, 2013 / 4:07 pm

      More or less Nfx – although I will likely do it in real-time and just add/take profit/jump in and out at many of the previously drawn lines of support and resistance.

      The great thing about drawing these lines and identifying these price areas is that……they are now already “on the chart”…and become far easier to target / trade around. I need to see this last twist / turn in the dollar resolve itself before getting to excited – but will be posting the trade entries / ideas here as we move through the week.

  2. zkotpen March 18, 2013 / 10:56 pm

    Hey Kong,

    I did take a long position in the DXJ trade I mentioned yesterday, and not even at the best time, which was early morning in America.

    But I am also aware of your comments above. I’m looking to scalp out of my short Yen / long Nikkei position early or whenever the market starts doing what you suggest — in a few hours or a few weeks.

    My question for you:

    Do you plan to go long on the Yen in the short term, then turn back around and go short on the Yen? BoJ meeting is April 3-4, and the new leadership is expected to move toward further easing.

    I admire and respect your knowledge of markets and currencies, and your quantitative assessments, which I find invaluable.

    I would like to point out that I have been Easternizing since 1986, the same year I declared my major in Economics. That makes me 27 years old in Asian culture. And not one culture in particular, but a broad array of Oriental culture.

    Japanese fiscal and monetary policy are aligned, and focused on achieving a specific goal. Back in the 60s, American auto manufacturers made cars to be replaced at about 100,000 miles, and totally blew off the post WWII Quality movement. Rebuilding Japan embraced that movement, and took control of automobile manufacturing, changing its shape forever. Whereas before, 100,000 miles was the end of a car’s lifetime, now, it’s still in the early half of its life expectancy. The Japanese made that happen.

    How much weight are you giving to the qualitative aspect?

  3. Ben March 19, 2013 / 11:06 am

    Kong, I’m playing ball with you on this one. Kind of a roundabout way to do it, but it seems to track alright: Bought puts on YCS.

    • Forex Kong March 19, 2013 / 11:19 am

      Well…..leave it to you to get “creative” there Ben – gees……you kill me man – but yes you’ve got the trade 100% with respect to getting long JPY.

      Please keep in mind you are using an investment vehicle on the absolute upper end of “insane risk”. I love it – buying puts on an ultra short highly leveraged ETF. You know how to roll!

    • Forex Kong March 19, 2013 / 11:22 am

      Please either buy yourself some time on them – OR if it’s a quick trade – stay in the money ( as deep as you can afford) and get the largest move out of the options as you can – as the underlaying moves lower.

  4. Ben March 19, 2013 / 11:31 am

    It’s nothing I’m proud of, Kong. I come from a long line of gambling addicts. You may be doing this for profit, but I’m playing along to divert myself from worse forms of risky behavior. Cheers!

    • Forex Kong March 19, 2013 / 11:32 am

      Love it ma man – you go Ben!

      Spin that wheel!

  5. schmederling March 19, 2013 / 6:44 pm

    I have taken a hand full of options…. XLK April 17$ puts…..something has to give here on the very short-term…

    • Forex Kong March 19, 2013 / 7:13 pm

      I’ve inched in on long JPY trades which equate to the same – risk off type activity.

      You know…..I won’t be surprised if tomorrow good ol Bernanke will talk up QE and do what he can to push on the ol USD, and fair enough. Back n fourth we go. These types of news related sell offs and then “fed speaks” etc – all perfectly timed and planned as to get people fired up.

      Im considering that the top in this market has already passed – and we are just going through the motions now.Ill stick with whatever shorts I start laying out now – and play another pop if it comes for fun, but won’t be looking for much on the upside of risk.

      What could any potencial “rally” have left in it anyway?

  6. Ben March 20, 2013 / 1:23 pm

    JPY weakening trend not broken or too early still to say?

    • Forex Kong March 20, 2013 / 1:33 pm

      Nothin good to say about it today that’s for sure….as my initial entries have more than been blow through on at least a couple pairs.

      My thinking ( as usual ) is that I’m a touch early – and will likely continue to build positions here as we move forward. My charts of JPY against a pile of currencies suggest that the reversal / safe haven bid is here – but hey….in a sense it’s fighting the FED and the general “never ending upward rise in risk” right? – So….there we have uncle Ben and the “never ending support” on the tube as we speak.

      You’ve got to be of the camp that markets are going to correct – in order to stay in the trade. It’s obviously way to soon to tell ( being 24 hrs ) but that’s the trouble with the gamble man…..a day or two of options going against a guy is rough.

  7. Ben March 20, 2013 / 1:37 pm

    Cool, that all makes sense. Just wanted to know if your overall outlook had changed due to Uncle Ben’s enthusiasm in continuing his route to fiat currency dilution.

    My options are out a few months and just gamblin’ money, so I’m not worried. Appreciate your take on things.

    • Forex Kong March 20, 2013 / 1:41 pm

      Ya…good reason why I “tread so lightly” here these days – with smaller positions and lots of “patience”.

      My overall outlook remains the same – that we’ve about topped on this “grind higher” with perhaps a little further upside. Trouble is…..these things can take weeks even months near significant turns. Especially a large scale top.

      JPY has been so completely oversold – it will take a huge inflow in time of risk aversion – and I’m of the thinking, it can’t be long.

  8. curiousmind March 21, 2013 / 10:30 am

    new to the blog. Saw a recommendation and decided to check it out. Kind of wish I came across earlier. From the action of JPY since last night, maybe you are only 1 day early? Great Blog btw, will be reading every day now.

    • Forex Kong March 21, 2013 / 10:37 am

      Curious Mind! Cool handle!

      I appreciate your comments – thank you….and yes I’m often a day early – but rarely a day late!

      Get on in here and contribute / comment where you can – nice having you aboard.

      • curiousmind March 21, 2013 / 10:48 am

        Thanks for the warm welcome. Curious to know your view on AUDUSD, it seems to be bucking its correlation as a risk off currency today…

        • Forex Kong March 21, 2013 / 10:57 am

          Absolutely bizzaro action across the board today – as AUD/USD does more than it’s part in clouding the picture.

          On days like today – with the uncertainty out of Cyprus and stocks up at all time highs, it’s tough out there for sure. As well with the USD hanging at it’s near term highs – the picture is far from clear. I’m staying out of USD pairs til it makes a move – and will continue to work the LONG JPY (risk off) trade should we go that way.

          Today is most certainly not a day to be making any “large scale” trade decisions.

  9. curiousmind March 21, 2013 / 4:00 pm

    “One of the factors that can contribute to temporary USD/JPY weakness is the end of Japanese financial year on March 31st. Traditionally Japanese companies tend to bring their profits in US dollars back into the country. This seasonal factor could lead to additional pressure on USD/JPY leading to the end of the month.”
    Found this info in the blogosphere, most traders seem to ONLY want to position long, every dip is bought, look at that V shaped low today, exhaustion in sellers of USDJPY?? AUDUSD is totally on its own today….the volatility in the EUR is remarkable, scary to even look at..

    • Forex Kong March 21, 2013 / 4:34 pm

      My short USD/JPY performed well enough today – as I’ve been trading the smaller time frames here, keeping myself nimble, and more or less staying as close to “cash” as I can.

      As I said earlier – Ill likely stick with these through tonight and tomorrow – and if I don’tr see a decent move or action, Ill just ditch’em.

      In a long term sense I am extremely bullish on USD/JPY so this in itself is “counter trend” activity to me. I trade these areas with small positions and keep extremely nimble. If I get a good move great – if not….we find one somewhere else!

  10. zkotpen March 22, 2013 / 6:15 am

    Howdy Kong!

    Thanks for the update on the Yen. As you know, I was short Yen/long Nikkei in DXJ fund… I bailed yesterday. Not at the top, but still profitable… and before the rise in Yen and today’s decline in the Nikkei!

    Basically, I do believe that there is upside to the Nikkei and downside to the Yen between now and April 3/4 when the BoJ meets. Something you can keep in mind.

    Still, your comments have helped to remind me that even though I believe DXJ will continue higher, that will NOT be in a straight line. I’m trying to learn to be more AGILE in my trading. As in, ride the up wave up, ride the down wave down. Sit in cash when the wave looks like crap.

    Cheers ~ zkot

    • Forex Kong March 22, 2013 / 6:24 am


      Right on – I’m glad to hear you are improving and working hard – thats what it takes!

      It’s tough out there right now – with trouble out of Cyprus / EU holding up investors and creating panic. I assume things will be on hold here through the weekend, with markets waiting to see how this gets resolved.

      USD is still hanging around near highs – and the currency markets in a general holding pattern. Have a great weekend Zkot – love your pics!

  11. curiousmind March 22, 2013 / 8:26 am

    Kong, just wondering whether you are still long JPY, or you got out already last night? Do you have a target in mind? With USD hanging near high, do you think a breakout might be in the card? or a break down?

    • Forex Kong March 22, 2013 / 8:39 am

      Im 50/50 on it at the moment – and had taken the majority of profits on JPY moves early this morning, and reloaded a couple positions here after this “pop”. For example short CHF/JPY now -19 pips as well short USD /JPY now down -16 pips on the trade.

      Obviously the immediate move suggests that the ol JPY may just flop here – and that “risk on” will continue….but longer term time frames still have me of the mind set – that JPY has bottomed. USD making a move here this a.m – but really its a EUR move – as AUD/USD continues to trade flat.

      For what it’s worth – I’m just gonna sit tight through the weekend – see how Cyprus resolves, and make a move from there. If the entire LONG JPY attempt here ends break even – that’s O.K with Kong.

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