Analysis of USD and JPY in Forex

Most experts agree that the risks are elevated between these two currencies. There are different kinds of risks that are associated with forex trading. The inherent market risk is present in case of all kinds of forex trading. The other risks are liquidity and event risks. Bank of Japan reported the call around action to be an event risk. It is unlike any economic release event and could occur at any time. The result of the occurrence was seen by the forex traders recently when USDJPY remained at 14 pips in an unchanged form.

With elevated risks, Forex trading resembles gambling. People are not sure when there would be a call for dealing or if the rumors of calls will surface. Many think that they are sure of the movement, but that is again a false notion.


Managing market risks

When market risks need to be managed through price action this can be done through technical expertise. Event risks, however, tend to override market risks. If one looks at the weekly forex chart of these two currencies, the price has been moving below the trend line. The law has fallen short of 61.8% of the retracement that occurred in July 2014. The low came to a figure of 110.96 which is the highest value as compared to May 2010. If one views the hourly charts, one will see acceleration in the trend, especially in the lower channel lines which hover around the 111.88 region.

Trading between both currencies

In general, today’s Trading of JPY against USD is a complicated trading to undertake. If one chooses to see JPY against US notes, bills and treasury bonds, this might become simpler. Interest rates are a driver in this context. Hence, when looking at forex trading between these two currencies, one would need to judge the risks in terms of the interest rates. If the direction of the interest rates is judged right, the direction of the trading can be decided as well.

As per traditional times, USD and JPY is a currency pair that correlates with US treasuries. If the bills, notes and treasury bonds rise in value, the prices of this forex pair weaken. One needs to take a long position with respect to trading in this forex pair. The logic behind this trading position is that, bond obligations are always kept by the US government and hence, anything related to these would be safe. When interest rates go up, Treasury bond prices go down. This in turn tends to make the US dollar value go up and it will strengthen the USD/JPY prices. In such a scenario, more yields require from the Treasury bond trading which leads to a lower price of the forex pair. It is considered to be a short position. There is an inverse relationship between bond prices and yields. If yields go down, there is a need for liquidity. This inverse relationship is known as market risk. To know how to trade in forex with less risks Refer to the Article called Tips on How to Invest in Stocks without Major Risks.

Leave a Reply