Free Trade Ideas

Over the weekend, Japan’s ruling Liberal Democratic Party (LDP) and its coalition partner Komeito lost their majority. There are still 22 seats left to declare, but a majority is now not possible after the opposition party, the Constitutional Democratic Party (CDP), won 143 seats.
This has triggered fresh concerns over the shape and direction of future policy in Japan, and currencies do not fare well in uncertainty. As a result, the Japanese Yen experienced a fresh wave of sells this week, and this could continue heading into a busy week in the markets.
Not too long ago, the USD/JPY “policy divergence sell” was the trade to be in. However, the narrative has changed as data has rolled in over the past six weeks. The economic data coming out of the US has been a lot stronger than most expected, and as a result, all but ruled out the possibility of large rate cuts this year. The main reason for the USD/JPY upside has been the rally in long-term Treasury Yields. In fact, the movement in the yield curves has been bear-flattening, which is something you would expect in a “higher-growth, high-inflation” world. The Bank of Japan will deliver an interest rate decision this week, but it seems nailed on that rates will be held where they are. The data in Japan has not been convincing either, so the markets are expecting a more accommodative approach. USD/JPY has safely exceeded the 150 mark, a level many thought would be resistance. It is now facing another test, the 61.8% Fibonacci retracement, and a daily bearish order block. Initially, these levels acted as resistance. However, the price is now breaking above the 61.8%, and moving deeper into the daily bearish order block. The top of this order block is at 155.200. Should this level be broken, USD/JPY may explode higher and move back toward 160.000. The bulls are in control here, and it may be sensible to use the break of these resistance levels as support levels. Trade well all! FYI - I cashed out my USDJPY at entry as explained in today's stream!