We get so caught up in day-to-day trading that we often forget about the really big picture so I’ taking a step back and reminiscing about what has happened to USD/JPY in the last 15 years.
- Firstly we started to fall off 140+ highs in the aftermath of the Asian currency crisis and a low was posted near 102 after the Long Term Credit hedge fund blew up (lets call this wave 1):
- From there we rallied back above 135 on Japanese banking worries(wave 2):
- Then we witnessed a huge move out of the USD when the Patriot Act was enacted and the US invaded Iraq, fall to 102 again (wave 3):
- The next phase was the ‘carry trade build-up’ which took USD/JPY back to 124 (wave 4):
- And finally we’ve had the big fall post GFC which has taken USD/JPY to record lows (wave 5).
This is a very mature move and I’m pretty confident in predicting a 2:1 risk/reward ratio for longer-term longs against shorts! In other words, we will see 110 again before we see 70. Of course timing is absolutely everything in the FX market and I’m certainly not the first trader to realise that USD/JPY is way oversold. Could it fall below 75, sure it could. Would it be the best buy of all time down there, well pretty close imho.