Risk Aversion Resume: Watch the Dow forex traders!

Wednesday, May 23, 2012

The risk appetite that began the week seemed to take some of the pressure off the BOJ. After all, the Bank of Japan’s desire to see the yen weaken would undoubtedly be easier if the risk appetite returned to the U.S. equities market. With risk most certainly back off the table (thank the resumption of the Dow’s downtrend and “Grexit”) the yen is gaining against all major currencies.

With the BOJ Press Conference, Overnight Call Rate, and Monetary Policy Statement behind us, it’s a clearer path to the downside for the AUD/JPY, EUR/JPY, and USD/JPY. Thank the resumption of the Dow’s downtrend for that.

Past performance is not indicative of future results

The daily Dow Jones Industrial Average has resumed the downtrend after making a 23.6% Fibonacci Retracement in an unsuccessful bid to find buying support above the 12,500 major psychological level.

 

The oversold rally which is just really a term that describes a correction is what the equities market gave traders Monday to Tuesday’s lunchtime. It was only after the European and U.K. close did the market begin to show it’s true colors.

This puts yen strength squarely in focus and the yen has

For the next two days – due mainly because of the steepness of the sell-off in the aforementioned pairs – I will likely remain short-term in my trading focusing on capitalizing on the five, 15, and 30-minute time frames.

I also am concerned that with the way that the Dow was able to recover from much greater losses mid-session that there is a chance that some choppy price action is going to come. That would be yet another reason to stay nimble, sta short term.

I like the AUD/JPY 30-minute chart and 60-minute chart for a short sell set up. The 60-minute chart is not typically a time frame that will consider “short term” but if it can offer a strategic advantage (by way of stacked support or resistance, better market psychology clarity, etc.) I will consider it. In this situation, with a higher risk tolerance for the 30-minute short sell to the 50SMA(close) the 30- minute short sell and the 60-minute’s swing short zone will overlap. Of course more prudently some traders may choose to wait for the 60-minute’s 20SMA(close) and 34EMA(low) to be reached in lieu of an “aggro” (aggressive) entry.

Past performance is not indicative of future results

The intraday swing short on the AUD/JPY would trigger as prices reach the 20 period SMA close and 34 period EMA low. Remember however if the Dow closes strong, there could be more yen selling going into the Asian session.

 

The Bank of Japan has decided to leave its asset purchase fund unchanged. I think the more impactful decisions – far longer effecting – will be the risk environment and not the BOJ (who will likely not even consider intervention until the USD/JPY trades below 78.00) and not the Fitch downgrade. If you want to know where the yen is heading, watch the Dow.

 

As an active forex trader and Chief Currency Analyst for InterbankFX.com I do write for a number of sites all over the web and I am happy to say that I will be posting updates at www.IBFXconnect.com. My Activity Board will feature the trades from my trading account as well as intraday commentary.

Start the discussion! Questions? Comments. Leave it here at the Daily Forex Trading Edge for Raghee to personally answer. Using the icons at the top of the article to forward this update to a friend via email, post it on Google or Facebook or simply print it out for reading later.

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Posted By: 

Raghee Horner

Raghee Horner, chief currency analyst for IBFX, provides her personal daily trading tips and insights through Dailyforextradingedge.com. An experienced trader with over fifteen years in the markets, Raghee is the co-founder of EZ2Trade Software and has taught her brand of technical analysis and charting strategies to students all over the world. She is an international author and has taught currencies, futures, and equities trading for over a decade.
Related Terms: