Tuesday, 15 October 2013

Four Signals to Ride Debt-Deal Optimism

Steven Randolf, Excel Analyst

Sometimes it doesn't rain but it pours. You don't see one or two trading opportunities, but many. This is what is happening on the yen front at the moment as the yen continues to weaken on trend momentum and overall debt-deal optimism.

Though everyone is nervous about what is going on in Washington, the significant gains seen on the stock indexes last Friday and yesterday (Monday) point toward an overall optimism that something will get worked out before the October 17th deadline.

For us currency traders, that hope in the face of uncertainty carries over to yen weakness: investors are pulling out of the safe-haven yen because they are betting on the likelihood that the debt ceiling will be raised and the default avoided, at least for now. We are hearing that politicians seem to be getting closer to making an agreement, with Senate leaders closing in on a deal to raise the federal debt ceiling and end the government shutdown, and so the stocks and yen crosses get lifted.

My best signal to take advantage of yen weakness was already given to you some days ago when I issued a buy signal alert on AUDJPY at 92.74 that could easily rally to 95. That signal is currently up about 70 pips now, but just in case you missed it, and/or want to know about other opportunities similar to it, I am going to offer four additional signals to take advantage of debt-deal optimism: momentum buy alerts on USDJPY, EURJPY, GBPJPY, and NZDJPY, all generated last week but still valid signals right now.

Our USDJPY buy momentum signal was generated at 98.15 on October 10th and, though up 30 pips from entry at present time, it is still valid, as it has the potential to move to the weekly resistance of 101.5 (365 pips). The momentum buy signal was triggered at the same time that price broke out of the trendline resistance at 98, and an exit can be placed if close falls below trendline support at 96.00.

Click to Enlarge USD/JPY Daily Forex Chart

Our GBPJPY 40-SMA buy signal was generated at 156.70 on October 11th and it is now 70 pips from entry, aiming for the September high target of 159.50 (300 pips). This moving average cross buy alert was triggered at the same time that price broke above trendline support of 156. 60, and, given that this support trendline is now at 156.95, one can exit if price closes below it.

Click to Enlarge GBP/JPY Daily Forex Chart


Our NZDJPY buy momentum signal was generated at 81.95 on Oct 11, and it is now 73 pips from entry, aiming for a April high target of 86.00 (400 pips). The momentum buy alert was triggered at the same time that price bounced off trendline support of 85.50, and given that the support is now at 85.60, one can exit if price closes below it.

Click to Enlarge NZD/JPY Daily Forex Chart

Our EURJPY buy momentum signal was generated at 133.40 on October 13th and it is now 20 pips from entry, aiming for the 2009 resistance level of 139.00 (550 pips). The momentum buy alert was triggered at the same time when price bounced off trendline support at 131.25, and given that the support is now at 131.50, it becomes an ideal place to exit if close falls below it. Remember that the EURJPY is close to its 4-year high of 135, and if you think that that a 4-year high is sufficient resistance, then the upside potential on being long this pair is limited. But if you think this 135 can be breached, then a breach can easily see the 139 area.

Click to Enlarge EUR/JPY Daily Forex Chart

The above signals are betting that something will be pulled together at the last minute to put out the current debt firestorm – as evidenced by the strength of the stock markets and the weakness of the yen.

However, every trade has its risks, and the risk here is that if the fire continues to rage and both sides of the house continue to behave irresponsibly the closer we reach the deadline, the default risk will heighten to the point where investors will flee back into the safe-haven yen, which would reverse or stop out all the above signals. Trade with caution.

Forex Razor - MT4 EA Stats

Strategy

Signal  Momo Buy Signal on USD/JPY,
Entry Price: 98.15
(Generated at Oct 10, 5:00 PM EST) 
 MA Buy Signal on GBP/JPY,
Entry Price: 156.70
(Generated at Oct 11, 5:00 PM EST)
 Momo Buy Signal on NZD/JPY,
Entry Price: 81.95
(Generated at Oct 11, 5:00 PM EST)

Momo Buy Signal
 on EUR/JPY,
Entry Price: 133.40
(Generated at Oct 13, 5:00 PM EST)
Strategy Logic
  • 52-Momentum
  • 13-Momentum
  • 40-SMA
  • 11-Price Channel
  • 17-Momentum
  • 13-Price Channel
  • 14-Momentum
  • 155-SMA
  • 12-Price Channel
Stop Loss Cross below 96.00  Cross below 156.95 Cross below 85.60 Cross below 131.50
Take Profit 101.50 (365 pips) 159.50 (300 pips) 86.00 (400 pips) 139 (550 pips)
Download MomoUSDJPY-D1-Oct14 MomoGBPJPY-D1-Oct14 MomoNZDJPY-D1-Oct14 MomoEURJPY-D1-Oct14

All trade ideas and strategy setup suggestions found on ExcelMarkets.com are hypothetical. ExcelMarkets.com has not placed these ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of future results.
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