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WEEK AHEAD: JANUARY 18

Short Description

The story has been the US dollar rebounding in the major forex pairs, one of which is dollar yen. With the Bank of Japan setting interest rates this week, my trading strategy is to watch if this dollar up-move continues against the yen. Thanks! Rich

Video Script

Traders watching possible USD/JPY bottom -THE WEEK AHEAD (Jan 18-22, 2020)


Hi everyone, one of the big stories last week was the US dollar rebounding in the major forex pairs, one of which is dollar yen. With the Bank of Japan setting interest rates this week, my trading strategy is to watch if this dollar up-move continues against the yen. 

Let me start with the technical analysis, I’ll cover the BOJ in the economic calendar then I’ll talk some fundaments. So when I talk about a possible bottom in USD/JPY I’m referencing the bigger picture that you see on this weekly chart. You can see we’ve had three reversals off the 103 level and this falling wedge pattern tends to be bullish. A bullish confirmation would be if we get a breakout above the top trendline where as a break back below 103 would be bearish.

By the way if you’re getting some use from this video for your trading, please click the like button and the YouTube algorithm will make sure more people see it and we can keep making them. 

Now it’s a busy economic calendar this week. There was a change to the dates for China GDP, which is now Monday this week- same for industrial production and retail sales. German CPI follows on Tuesday. On Wednesday there is UK CPI and the Bank of Canada rate decision. There is Australian unemployment as well as the BOJ and ECB rate decisions on Thursday then we round off the week with PMI data for January on Friday.

One thing to understand about the dollar yen currency pair upfront is that it is heavily dependent on US bond yields. When US government bond yields rise faster than the equivalent bonds in Japan, Japanese investors tend to want to own more US bonds than Japanese ones to earn more interest on their money. That means they sell yen and buy dollars in order to buy the US bonds.

With that positive correlation in mind – US treasury yields are at their highest since the crash in March last year – having recently risen back over 1%. I talked about the effect Democrats winning the Senate had on that last week. Yields in japan are rising too – but not by as much because Japan isn’t planning the same huge amount of government spending that Democrats in the US are. Now will this spread between US and Japanese bond yields continue to widen? Of course, nobody knows – but if they do – that is a strong reason to suspect the USD/JPY is ready to bottom out.

And the second consideration here is the Bank of Japan. The BOJ is unlikely to change its monetary policy at the meeting this week– it’s more a question of their economic outlook. The consensus opinion is that they will keep an optimistic view of the Japanese economic recovery. However, watch out because Japan is suffering in a second wave of the coronavirus so the BOJ could bring a dovish surprise to offer extra support.

Right thanks everyone, good luck trading this week and make sure to subscribe to our channel so you don’t miss the next video.
 

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