I briefly looked into some longer term patterns on the Yen, and I hope that what I found could be of some use to you all. Monthly candles, USD/JPY, 16 years:
First… what on earth are these up arrows?
They highlight the profitability of a strategy to buy dollars with yen on New Years Day, and sell out of the position on April Fools Day. Stops on previous six-month low. Yellow is flat or up, red is loss, and blue is stopped out (but still would have made a profit in this case). I kept the 2011 figure in, it would have been a slight injustice to most traders to tell them how to trade the spikes after the earthquake, knowing the yen-intervention trade afterwards. Exit/re-entry would still have earned you money if the leverage was not particularly big.
Seems like we’re gonna get the 17th time working in our favor in two weeks time right?
Formost of the years, you could have thus bought your yen back afterwards and remained short dollars for the rest of the time (which assuming you are keeping long stops would have earned you money every year except for three), but…
The Directional Movement Index forecast those three years!
If the 12 month DMI is positive for the USD, then the short-dollar trade doesn’t work for the rest of the year! What was the signal where the DMI turned the corner the last two times? Look at the two blue vertical lines and find two massive rally months that broke out of the last 5-6 months of trading ranges. Ring a bell? Whatever, just look at the chart far left. If you’re taking this trade, be wary of the DMI break in favor of the yen (bronze arrows downwards).
Where to then? Look at the fibs…
Fib levels off the 124-76 prices are also fairly interesting. True, the last intervention high that we’re looking at is around 84.3, but given the break out of the triangle, and massive price action along it for the last 5 years, I’d say we have a whole new world out there, especially with the recently discussed changes in Japanese policies and reconstruction spending, overseas M&A, etc. The major level I’ll look to take profit here would be around the 87.3 level, since the trend line that 84.3 bounced off of is broken already and 87.3 has quite a lot of consolidated price action. Beyond this, I guess targeting the 90-94 range would not be entirely out of the question for the year-end or Q1 2013 time frames before making a re-evaluation of the situation.