Flows and Orders/FXWW News/USD/JPY

USD/JPY: Plenty of volatility, perfect for the day-traders

  • Position unwinding ahead of August holiday period is main factor at play here.
  • Latest data shows Yen shorts had again been increasing sharply and we saw a sharp unwind on Friday.
  • The USD remains under pressure ahead of an important data week and more FOMC.
  • Yen crosses look mixed and volatile consolidation is favoured rather than any big trend moves.
  • Fairly quiet start in early interbank trade saw a quick push to test levels below 98.00.

The Yen looks oversold and with the market short and probably looking to cover before holidays begin, I still favour the short-side in USD/JPY. But, its already fallen sharply so you need to pick your levels very carefully. Of all the major pairs, this is the one that seems most suited to the day-traders.

  1. Hi sean. I was thinking of taking a short position on gbpusd as it’s near the 61.8% fibo. Gbpjpy looks like a huge bear flag to me too. What do you think

  2. I’d suggest sticking with GBP/JPY if that’s where you have the technical signal Muneer? I’m pretty bearish on the USD at the moment so if we are to see GBP weakness then more likely through the crosses IMHO, (pairs like GBP/AUD could be worth a look as they are quite overbought on many indicators m/t). If you do want to sell cable, then keep tightish 50 pip stops is how I’d play it

  3. Hi Sean,

    Here’s a couple questions I had on orders in the interbank market and how they affect other pairs. I’d really appreciate any info. you’d care to share on this.

    Let’s say a large player sends thru a very large EUR/JPY order. Since EUR/JPY is made up of EUR/USD and USD/JPY…a large EJ order would have to also move up these other two pairs….it’s just of matter of how much on each. So if, for example, the large order moves EJ 30 pips from 130.00 to 130.30, EUR/USD * USD/JPY must move and multiply up to 130.30. My question is this: what or who is making these two pairs move to catch up to the EJ order? Algos? Arbitrage players/programs?

    And also, as far as how much each of the two pairs move, for instance, maybe UJ moves up more than EU this time….but the next time EU might move up more than UJ……..is it all based on what available liquidity there is in each pair? For instance, if EU has fewer offers in its way than UJ, it will move up further than UJ?

    Since in FX all pairs are related in some way, I’m just wondering how it is all brought together mechanically on the orders going thru and affecting all the other pairs. Maybe it would help in contemplating certain pairs for potential trades. I know you like to look at other pairs and how they might affect others, that is how I got to thinking of my questions above.

    Thanks for any enlightenment you can share on this.

  4. Hi Anthony. The interbank market sorts the whole mess out and like you say, it depends on availability liquidity in each pair. EJ might not be a great example in that it’s almost a stand-alone market in itself with plenty of real supply and demand. If the cross moves and the underlying pairs EU and UJ don’t move, then this gives rise to arbitrage possibilities and there are many mkt participants sweating on exactly these types of opps so arbs only last fractions of seconds in the FX mkt.

  5. Very much appreciated, Sean. Thank you. Maybe a better example I should have said would be like EU, UCHF, and EUR/CHF.

    I kinda figured the arbitrage would be almost instantaneously in todays day and age. Not much we can do to profit on that minute of a timeframe, but I am thinking for longer term trades….for example, the Daily or 4H charts…to always look at other correlated pairs for clues to a particular pair’s directional movement….because what we’re seeing on a pair chart is not only the influence of that pair’s supply and demand, but also the supply and demand of other pairs’ on that pair…..like how you do when you look at other correlated pairs.

    So for EUR/CHF, it’s moving maybe only a little bit on EUR/CHF-specific chart technicals, orders being processed, fundamentals, etc…..but mostly perhaps from the disparity of EUR/USD and USD/CHF…and the algos and computers moving EUR/CHF to bring it in line with how the other two pairs are moving and the disparity between them..

  6. the arb models are very sophisticated and there has even been one case where a big Wall St bank moved thgeir arb team to Atlanta so as to be closer to the main servers (prob by .000001 sec). The inter-relation between all the different ccy pairs is wht makes the ccy mkt so special

  7. I agree and it’s why I stick with spot FX (although i have been tempted to move into futures for other markets like stock indexes and Bonds).

    Good stuff. I appreciate your thoughts and insight, Sean. Thank you.

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