The Japanese yen (JPY), viewed by investors as a safe-haven currency due to Japan's significant balance of net foreign assets (NFA), has made one-month highs against most of the world's major currencies this month as heightened volatility has rattled global equity markets.
Traders will mull over The Bank of Japan's (BOJ) monetary policy statement, outlook report and press conference, scheduled for release between 11 p.m. EDT Tuesday and 2:30 a.m. EDT Wednesday. Most economists surveyed by Bloomberg expect no change in monetary policy, but the market will eagerly listen to the BOJ for further guidance about allowing greater flexibility in yield movements on 10-year Japanese government debt.
As the BOJ policy meeting nears, traders should monitor these four currency pairs on the 60-minute charts for shorting opportunities. To increase the probability of a successful trade, traders should wait for a bearish candlestick pattern, such as a bearish engulfing or piercing pattern, to form at the levels mentioned below.
U.S. Dollar/Japanese Yen (USD/JPY)
The USD/JPY has traded within a broad descending triangle, a bearish chart pattern, throughout most of October. There have been several fakeout price breaches, which is common in forex (FX) markets, but the pattern remains intact overall. Traders should look for short opportunities between the 112.5 and 112.8 level, where price is likely to find resistance between the descending triangle's upper trendline and top of a trading range that has been forming since mid-October. The relative strength index (RSI) could be used in conjunction with price action to help determine overbought conditions – for example, waiting for the RSI to approach 70 before entering a trade. Consider placing stop-loss orders 20 to 30 pips above the entry price with a profit target sitting near the early-September swing low at the 110.5 level. Alternatively, traders could take profits at the trading range's lower trendline.
Euro/Japanese Yen (EUR/JPY)
This pair has moved in an orderly downtrend since late September, with several fakeout spikes above the downtrend line. Consider opening a short position between 128.4 and 128.6, where the pair's price should find significant resistance from the downtrend line and 200-day simple moving average (SMA). A stop could sit slightly above the Oct. 24 retracement high to protect trading capital. Traders should think about booking profits on a move down to the 125.25 level – an area at which the pair is likely to find support from the August swing lows.
Pound Sterling/Japanese Yen (GBP/JPY)
The GBP/JPY pair, known as the "dragon" by traders due to its volatility, started to trend sharply lower from mid- to late October. The pair's price is trading between the 50-day and 200-day SMAs and appears poised to resume its move back to the downside. The downtrend line that connects several October swing highs is also providing overhead resistance. Traders could look to short the pair between 144.4 and 144.8 with a stop-loss order sitting just above 145.0. Consider placing a take-profit order at the 143.0 level, where the price should find horizontal price support from August and September price action.
Australian Dollar/Japanese Yen (AUD/JPY)
Traders actively trade this pair during the Asian session as both country's business hours roughly overlap. The AUD/JPY pair has similar price action to the USD/JPY pair in that it's trading within a broad descending triangle. Traders should consider shorting this market between 79.7 and 80.0 – the area between the downtrend line and top of a recent trading range should act as a wall of resistance. Think about locking in profits near the trading range's lower trendline, or at the 78.8 level, where the pair's price may catch a bid from the September and October swing lows. Place stops just above 80.2 level to close losing positions.