T2W Trading Community

First of all, congratulations to everyone who made money on the recent Japanese Yen rally. One of my students caught some nice chunks of the recent move lower in USD/JPY, earning 70 pips and 85 pips on successive trades. Way to go, M!

The recent strength in the Japanese Yen created some terrific moves, but we should keep things in perspective - the gains made during the recent move lower in NZD/JPY (New Zealand Dollar/Japanese Yen), GBP/JPY (Great Britain Pound/Japanese Yen), and EUR/JPY (Euro/Japanese Yen) and other Yen pairs are nothing compared to the huge profits earned by long-term traders who were short the Japanese Yen when these pairs were rallying. For a case in point, have a look at the daily chart of NZD/JPY (see figure 1).

Figure 1: NZD/JPY falls hard, then bounces off of support at 77.50 Source: Saxo Bank

As we can see in Figure 1, NZD/JPY formed a base of support at 77.50 in November and December, then rocketed higher. The recent pullback brought the pair all the way back to support at 77.50. Please note that this pair bounced higher by over 400 pips (meaning that the Yen is falling) in the past four sessions since reaching that support level.

You have to ask yourself, what is the dominant trend in NZD/JPY? To make this clear, take a look at the weekly chart (see Figure 2). Here we can see that not only is the dominant trend higher, but the recent activity has created a massive hammer formation in the most recently closed candle. In fact, the recent sell off did not even constitute a 38.2% retracement of the long-term uptrend, and the pair was hitting a multi-year high just prior to the sell off.

Figure 2: NZD/JPY pullback viewed within the longer-term context of the weekly chart. Source: Saxo Bank.

The action in NZD/JPY is also reflected in other currency pairs – in fact, the trend is even more obvious in the weekly chart of EUR/JPY. Note once again the formation of a massive hammer pattern. This pair has also bounced over 400 pips in recent days
(See Figure 3).

Figure 3: EUR/JPY weekly; note the hammer formation. Source: Saxo Bank.