Time to get ready for the Bank of Japan rate decision tonight. This event has quite a bit of market sentiment and fundmanetal significance behind it, so it could be good event to trade off of.

First the technicals. USDJPY has already made its break yesterday when it cleared the previous swing high back on 1/29 at 122.25 and then shot straight through a 61.8% fib covering the big 135.18-101.75 bear wave. From a quick glance at the airspace above, there are few big levels that stand in USDJPY's way until 124.80-125.40.

So, where does these leave the rate decision. Most economists and analaysts expect the BoJ to pass; and the markets have latched on to the same idea with the yield curve flat for the the next few months (check out the report Terri and I did for all the central banks here. Therefore, a pass should already priced into the market. However, I think there is still some capital tied up in hedging risk against the off chance that the do hike. If the pass comes, this protection will be taken off; and big traders will be more confident in following through with the initial break.

Always keeping open to the black swans, a hike isn't even that big of an improbability. There is lots of speculation for an eventual 25 basis point boost, but there is argument as to when this will happen. You have considerable political pressures and the rising inflation and interest rates around the globe, so the impetus is there (if the pesky CPI numbers could just give them some inflation. Where is the imported price pressures with the yen at such incredible lows??) A hike could turn USDJPY - and the entire carry trade (though that's an off chance). The carry interest in USDJPY is well funded and whether the pair could sink back below 122.25 would likely depend on how far spot is from this former resistance level when the news hit the wires. If there is a lot of distance, momentum could die out before the break is made.

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The USDJPY breakout overnight is really impressive from a historical standpoint. In busting above its February peak, the pair has moved through 61.8 percent fib of its 2002-2005 decline (135.00-101.76). As our resident devout Elliottician Jamie Saettele will point out, the next big resistance is seen at the 78.6 percent Fibonacci of the same wave at 128. This also coincides with certain extensions and things that are best left to him to describe.

Long story short: medium-term long targeting 128, but not before a healthy retrace. I admittedly don't know where exactly I would enter such a long, but I'll update here when I think the currency is primed to move consistently higher.

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This week the DailyFX Dynamic Carry Trade Basket was up by 218 pips in value, accumulated nearly $150 on interest payments and had four profitable trades.

Still, the week didn’t start in the best way for us. On Monday, June 11th, the Reserve Bank of New Zealand intervened in the foreign exchange market to sell the New Zealand Dollar. Alan Bollard, the RBNZ Governor justified this action by saying that “As stated in our June Monetary Policy Statement, we regard current levels of the exchange rate as exceptional and unjustified in terms of the economic fundamentals”. We don’t think we will have a massive carry trade unwind in the weeks ahead but the most likely increase on volatility, on speculation of further RBNZ interventions, make the NZD dollar a bad trade to take at this moment. As a result of this we decided to remove the New Zealand dollar from our carry trade basket.

Yet, our carry trade portfolio continues well supported by 5 different trades and the current market environment, with volatility close to a record low, continues to push the markets in our favor. Good Luck in Your Trading!

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We closed out the previous position with 100 pips in profit.

The 2 year interest rate differential between the US and Japan( chart below) widened to 4.3% and the USD/JPY seems headed to 125.00. The Bank of Japan maintained its benchmark interest rate at 0.50 bps and the BOJ Governor Toshihiko Fukui said on Friday that the BOJ needed more proof of sustained economic expansion before lifting rates.

Trade Recommendation:

Long USDJPY @ 123.05 Limit
Target @ 125.00
Stop Below 122.00

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Usd /Yen

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Seriously Breaking Out ! ....

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No doubt the breakout is real - the question is how high? 125.00 seems to be a key level both psychologically and politically as many EZ and US policymakers will likely begin to express concern at yen one way price action.

Trade recommendation based on the FXCM SSI:

Buy USD/JPY @ 123.15 limt
Target @ 123.99
Stop below 122.00


According to our favorite positioning indicator, the ratio of long to short positions in the USDJPY stands at -1.61 as nearly 62% of traders are short. Yesterday, the ratio was at -1.42 as 59% of open positions were short. In detail, long positions are 7.9% lower than yesterday and 39.5% stronger since last week. Short positions are 4.6% higher than yesterday and 1.3% stronger since last week. Open interest is 0.6% weaker than yesterday and 7.1% above its monthly average. The SSI is a contrarian indicator and signals more USDJPY gains.

You can find charts with historical data at,
http://www.dailyfx.com/story/strateg...830566599.html

How to Interpret the SSI?

The FXCM SSI is based on proprietary customer flow information and is designed to recognize price trend breaks and reversals in the four most popularly traded currency pairs. The absolute number of the ratio itself represents the amount by which longs exceed shorts or vice versa. For example if the EURUSD ratio is 2.55, long customer orders exceed short orders by a ratio of 2.55 to 1. Conceptually similar to contrarian analyses using the CFTC IMM open position data or COT Report, the SSI provides an alternative approach that is both more timely and accurate in forecasting currency price movement. The SSI is a contrarian indicator that tells you how the market is weighted and where the trend may head. More long positions don't necessary suggest more confidence in the direction of the current trend. In general, when traders start having adverse movements against their position, many tend to increase the size of their position with the purpose to average down their entry price in one last attempt to recover from previous losses. However, the higher the number of short orders in a bull market the more dangerous is to take additional shorts because many of those traders who just entered the markets are also leaving their protective stop losses just above the current price action.

Hello Antonio

An interesting trade angle.

There was a Russian guy who successfully traded a similar
contrarian system. I'll try to find a link to his info.

JPY. My thoughts.............
The action sailed through a Gann resistance point on 13/6 so
I would be expecting that could now form as support. Today it sits at
122.48 and although I am already long I may add on a bullish reversal
signal in this area..... Short term target 123.92/98.
Medium term target circa 125.38 IMO.

regards - arco

Antonio

The Russian guy is Peter Tatarnikov. Forex Club Sentiment Index.

regards - arco

Thanks for the tip Arco. I'm allways interested on other traders ideas.

The USD/JPY reached our entry point at 123.15
We are currently up by 45 pips.
Our target remains at 123.99

Yesterday, 10 Year Bonds Treasury Futures Closed Above a Significant Trendline. This implies that US yields have probably reached a top and the USD strength against the yen could be limited.

Given the new circumstances we decided to close our long position in the USDJPY with 45 pips in profit.

This was our fifth consecutive profitable trade.

I will keep you updated.

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According to the FXCM SSI, the ratio of long to short positions in the USDJPY stands at -1.70 as nearly 63% of traders are short. Yesterday, the ratio was at -1.60 as 61% of open positions were short. In detail, long positions are 4.9% lower than yesterday and 11.9% stronger since last week. Short positions are 1.4% higher than yesterday and 0.9% stronger since last week. Open interest is 1.0% weaker than yesterday and 6.9% above its monthly average. The SSI is a contrarian indicator and signals more USDJPY gains.

Hi

Antonio

Do you see any chance to retrace back to 122 level or below before it heads to 128. Its may be the good time to take the long to target 128 level.

Thanks

JK