www.TheLFB-Forex.com The Forex Trader Portal
Trade Desk Thoughts:
Yen Cross Pair Trading- Trader’s New Rule-book
The post-credit crisis rule book has been re-written, and hopefully now stabilized what is known to be a trip as close to the edge of the precipice as the global financial markets have probably ever been. In the new trading arena there are plenty of nuances to learn, and old habit to kick.
One of the most vaulted terms used from 2005 through to 2008 was the Carry Trade, as in; “Traders unwound the carry trade today”, or “Positive trading saw the carry trade get built into today”. However, suddenly the carry trade has become a distant memory, something to be whispered in dark corners, for fear of sounding foolish, and therefore the following question is raised; what has happened to the carry trade and its Jpy/S&P correlation? TheLFB Trade Team has the answer:
Trading The Dragon: The value of the Jpy (Japanese Yen) has strengthened because for the first time in decades it is cheaper to borrow Usd based funds than it is to borrow Jpy based.
Since March 2006 the Bank of Japan rate has moved from 0.0% (Fed @ 4.75%), to a peak of 0.5% in September 2008, (Fed @ 2.0%) to the now 0.1% rate (Fed @ 0.0%).
The interest rate differential, (the difference between the Bank of Japan overnight, compared to Fed overnight rate) has always been something that pushed markets to sell the Jpy in risk tolerant trading (long equity environment), and buy Jpy in risk averse trading (long bond environment).
Now that the global economic community has collapsed central bank rates towards the similar rate that Japan has, the Jpy can be valued on the strength of growth forecasts, rather than interest rate differentials.
Reducing global interest rates are as close to the Japanese rates as we have seen, and therefore the Carry Trade and Jpy's converse link to equity direction is lost, and will remain that way until global rates climb, and Japan stays in a stagflationary economic cycle. The Nikkei had underperformed the other major indexes for years; this is not the case anymore.
The value of any Jpy cross pair is determined by the percentage change in USD/JPY and the percentage change in the dollar based major. For example EUR/JPY (132.62) is made up of the value of EUR/USD (1.4590) multiplied by USD/JPY (90.90). 1.4590 x 90.90 = 132.62
Therefore, the USD/JPY valuation determines the overall market value on the Jpy in other cross currencies, and for the first time in a while the Japanese Finance Ministry will be looking to address the strengthening yen, at a time that economic growth in Japan still has many questions to answer.
Cross-Dragon Trading: Jpy cross-pair trading has unique traits that follow the moves in the cross pair's moves against the Usd, as we saw above. The Jpy cross pairs move only as a consequence of the moves in the Usd based majors, and as such the technical reads have to be taken on two pairs; the Jpy cross, and the Usd major.
If USD/JPY does not move then the Jpy crosses will only be able to replicate the major Usd based moves. Jpy trading then becomes volatile, and to some degree pointless. The spreads are higher on Jpy cross pairs, the volatility increases because of the price average leverage across two pairs, and it turns into nothing other than trading CAD/JPY, for example, at 200% increased spreads, increased volatility, and a lack of stability over and above whatever comes with USD/CAD trading, if USD/JPY is not moving.
Usd direction, USD/JPY sentiment, and overall major pair momentum has to be factored in at the time that a Jpy/Cross ticket is placed. The Jpy cross pairs have their own nuances to work with, and their own specifics of times to place around the regional market opens and closes. Blanket yen trading will not be as reliable as choosing the one backed by strong momentum against the Usd.
Charting: TheLFB Weekly, Daily, and 4 Hour Technical USD/JPY Review
TheLFB provide daily Trade Plans on the Major cross dollar pairs, as well as on four of the Major cross yen pairs, and also produce daily Trade Plans on the dollar index, S&P futures, oil, and gold.
The trade team also produces thirty sets of professional grade technical charts each day that build a constant picture of weekly-daily-4 hour momentum flows and price action points. The service offers a daily video overview of market potential, and then keeps traders of all levels and experience in the loop of global market movement with 4 hour updates on the global drivers of the Usd. That makes deciphering Jpy based trading a lot easier.
All of the above when added to the educational signal service that produces a constant flow of forex based opportunities, means that TheLFB.com is quickly becoming a global market trader’s paradise when faced with ‘unwinding carry trades’, ‘Ted Spread variables’, ‘CDF, SWF’s and SDR’s’, and some new acronyms that are yet to surface out of the yet to be completed rule book.
TheLFB also offer access to an on-line training academy that has three course offerings that cover fundamental, technical, and commodity trading education, something that connects the dots of yen and dollar based trading, as well as introducing a way to link the 24 hour global market drivers to any potential trade, in any market environment.
The live trader chat room is popular with clients and traders who want to network, and bounce ideas off each other and off trade team members. In the post-credit crisis arena with the new rules and nuances mentioned above, the service offering can help stabilize the thought process, and get a trader through the new learning curve in quick time.
Each day the Trade Plan of the Day, and Chart of the Day areas expose an example of the member service offering, and the Membership Example page reveals what each of the above service offerings look like.
Soon TheLFB will be launching Options Corner, an area of the site dedicated to forex option trading, strategy reviews, and hedge potential using a mix of Spot currency and Options plays. The site is also looking at splitting the service offerings into tailor-made packages that a trader or institution can use in part or all, subject to their individual trading requirement and goals.