UPDATE: USD/JPY Short Trade (Re: Tuesday, 14 Jan, 2020 – USD Nears Resistance)
With reference to our previous analysis on the 14th of January (click the link below to read our technicals), we have recently managed to close our trade in profits upon completion of the projected moves.
Intial article: https://www.richmondeverett.com/post/tuesday-14-jan-2020-usd-nears-resistance
In the January analysis, the USD/JPY pair was nearing the resistance of a multi-year triangle pattern. This prompted our review of a possible short position on a monthly timeline.
fig 1. USD/JPY technicals in our previous post
Technical Analysis
In the two weeks immediately following our analysis, the USD/JPY reversed and crashed (with conviction) in our predicted direction. The next weekly candle flashed a false breakout, and proceeded to close below the year-tested triangle resistance. In the weeks following, the USD immediately reversed off the resistance line and broke down through multiple indicators, including the RSI, SMA and Bollinger mid-level. This signified the start of a larger move downwards. Our short position was entered at the resistance of ~111.5, and closed out at the underlying triangle support of ~105.5, yielding a profit of roughly 600 pips.
However, the USD continued to crash past the expected resistance, breaking down to lows of 101.00 in early March. This was most likely due to both the COVID-19 pandemic and the OPEC Oil war with Russia, with the simultaneous impact enough to force the USD out of it's consolidation pattern.
fig 2. USD/JPY movements in the weeks after
As of now, there seems no real way to effectively enter any mid-term trades, with the markets in such high levels of flux influenced by both Demand (panic selling by retail consumers and traders due to COVID economic fears), and Supply (feds interfering with the market rates and liquidity in an attempt to curb the crash). The safest way would be to play the opposite movements, which was outlined in an article written earlier by our CEO.
Read on how to play the COVID pandemic here: https://www.richmondeverett.com/post/how-to-play-the-covid-19-short-term-game-aside-from-stereotypical-pharmaceuticals
Fundamental Analysis
While our analysis followed through, there was a major breakdown in price that we couldn't anticipate. As such, we did not manage to fully take advantage of the price breakdown, as our Take-Profit level was already at a predetermined fundamental level. As earlier mentioned, one of the additional catalysts for the breakdown in price was the exponential increase in COVID-19 cases, affecting economies worldwide through travel restrictions/bans, and the lack of tourists and consumers. Furthermore, the Feds have announced that they will bring interest rates to effectively zero, spooking investors and causing markets to panic. Furthermore, this leaves them with no weapons left in monetary policy assuming the economy crashes anyways, making any trade entered now a risky one.
Key Reads:
Unexpected Viral-Based Recession: https://www.cnbc.com/2020/03/14/goldman-thought-economy-was-recession-proof-in-january---it-wasnt.html
Interest Rate Cuts: https://www.theglobeandmail.com/canada/article-us-fed-cuts-interest-rate-to-near-zero-to-support-economy/
How to Play the COVID Pandemic: https://www.richmondeverett.com/post/how-to-play-the-covid-19-short-term-game-aside-from-stereotypical-pharmaceuticals
Initial USD/JPY Analysis: https://www.richmondeverett.com/post/tuesday-14-jan-2020-usd-nears-resistance
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