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Will The DollarYen Spring A Breakout?Cho Sing Kum
The DollarYen (interbank term for US dollar against the Japan Yen) has been in a sideway range for the whole of this year, initially bounded by 121.89 on the upside and 116.36 on the downside. The DollarYen has a characteristic that if it breaks out of a prolonged sideway consolidation with follow-through it tends to go into a sustained trend in the direction of the breakout. The problem is to find out which side is the breakout. Because of the nature of prolonged sideway consolidation, it does tend to be tricky. It broke on the downside in May but lacked the follow-through. It traded to a low of 115.10 on 19 May. As recent as early June, I still thought that it looked kind of weak and might eventually break on the downside. Since then it met with resistance around the 120.00 area, penetrating it by 0.24 Yen on 30 June where it made high of 120.24 but retreated. But time passed and the downside break still did not come. Now I have been trading FX for many years, long enough to know that these big figure (round number) price levels in the DollarYen are significant. So I pay attention to the 120.00 area.
I had to give up my bearish view in the last week of June when the weekly DollarYen traded above the weekly parabolic of 119.55. See the weekly chart in Fig 1. Notice that after that, the MACD started to move higher. An important signal came at the close of last week when the weekly stochastics crossed upwards. All these (parabolic, MACD and stochastic) happening around the same time was a bullish sign. I use the weekly chart as a backdrop to the longer-term view. With this backdrop, I turn to the daily chart for trading opportunity. See Fig 2.
The daily DollarYen is trading above both the 20-day moving average and the parabolic. The daily MACD is moving higher just like the weekly MACD. Now two important events signal me to act. The first is the upward crossover of the daily stochastic and the second is the daily ADX rising above the -DI14. All these are bullish signs, which lead me back to the 120.00 area. I believe I may be staring at an eventual breakout in the DollarYen, out of its 7-1/2 month long sideway consolidation, on the upside! Yesterday the DollarYen traded to a high of 119.95. At the time of this writing, the high today is 119.99. I tend to think that there may have been a lot of short positions established yesterday and in this sense there may also be a lot of buy stops somewhere above 120.00 right up to 120.30. I am now long Dollar short Yen at the 119.85 level, but in the IMM Yen futures. I am short Sep03 Yen futures at 0.8354 today. I take this position firstly because of the technical indicators and also in anticipation and ahead of stops above 120.00. I think this is a better place to go long Dollar short Yen than to wait for the breakout. Let's see what happen. Note:
Follow up article:
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Important: These charts and commentaries are provided as an education on how technical analysis can be used. Technical Analysis & Research is not an Investment Advisor and we do not claim to be one. These charts and commentaries are not to be construed as investment advice or any other investment service other than the originally intended purpose as stated here.
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