Trade review and tips for trading the Japanese yen

The price test at 158.01 came when the MACD indicator had already moved well above zero, limiting the pair's upside potential.

The yen briefly weakened against the dollar yesterday but quickly recovered and stayed in balance ahead of tomorrow's Bank of Japan decision. The reason for the brief weakness was last night's Federal Reserve action. The Fed kept rates at 3.75%–4.00%; the vote was 10–2 because Lisa Cook and Beth Hammack pushed for an immediate 25-bp hike. Kevin Warsh called the U.S. economy strong and allowed that Q3 GDP might exceed forecasts. On inflation, he was more cautious, saying the picture has not improved and thus preserving market expectations for a December hike. For USD/JPY, this is important because falling yields remove one of the dollar's main supports.

Yesterday's U.S. data also offered little support for the dollar. The goods trade deficit widened to $134.9 billion in September versus a $130.4 billion forecast and $132.1 billion prior. Wholesale inventories rose 0.6% against a 0.5% forecast and prior reading, i.e., slightly above expectations. Crude inventories fell by 1.462 million barrels versus a 0.3 million-barrel draw forecast and a 3.061 million-barrel draw the previous week.

The picture from Japan is steadier. This morning the consumer-confidence index for October came in at 35.0 versus a 35.1 forecast and 35.4 prior — a touch worse than expected, but the market barely reacted. More important are the data from earlier in the week. The BOJ's core CPI for September accelerated to 2.4% versus a 1.9% forecast and 1.8% previously, and the corporate services-price index was 3.7% versus a 3.7% forecast and 3.5% prior. In addition, September headline inflation reached 2.1%. These figures fuel talk that the BOJ cannot remain sidelined forever. The policy rate is currently 1.25% after the September 18 hike, which passed by a 7–2 vote. The market prices in roughly a 25% chance of a hike at tomorrow's meeting. On October 6, Kazuo Ueda said more attention must be paid than before to rising price risks. I believe USD/JPY will remain balanced before the BOJ meeting; the main question for the pair is how hawkish Ueda's tone will be at the press conference.

For intraday strategy, I will mainly rely on Scenarios No. 1 and No. 2.

Scenarios for Buying

Scenario No. 1: I plan to buy USD/JPY today at an entry around 157.94 (the green line on the chart), targeting 158.30 (the thicker green line on the chart). Around 158.30, I intend to exit long positions and open short positions in the opposite direction (expecting a 30–35-pip move from that level). It is best to return to buying the pair on corrections and significant pullbacks. Important! Before buying, make sure the MACD indicator is above zero and is just beginning to rise from it.

Scenario No. 2: I also plan to buy USD/JPY today if the price tests 157.79 twice in a row while the MACD is in the oversold area. That will limit the pair's downside potential and trigger an upward reversal. One can expect a rise to the opposite levels of 157.94 and 158.30.

Scenarios for Selling

Scenario No. 1: I plan to sell USD/JPY today only after 157.79 is refreshed (red line on the chart), which will lead to a rapid decline of the pair. Sellers' key target is 157.49, where I intend to exit shorts and immediately open longs in the opposite direction (expecting a 20–25-pip move from that level). Sellers can return at any moment — only a hint from the central bank is needed. Important! Before selling, make sure the MACD indicator is below zero and is just beginning to fall from it.

Scenario No. 2: I also plan to sell USD/JPY today if the price tests 157.94 twice in a row while the MACD is in the overbought area. That will limit the pair's upside potential and trigger a reversal downward. One can expect a decline to the opposite levels of 157.79 and 157.49.

What's on the chart:

Thin green line — entry price where you can buy the instrument.

Thick green line — approximate price where you can place Take Profit or manually lock in profits, because further upside above this level is unlikely.

Thin red line — entry price where you can sell the instrument.

Thick red line — approximate price where you can place Take Profit or manually lock in profits, because further downside below this level is unlikely.

MACD indicator. When entering the market, it's important to consider overbought and oversold zones.

Important. Novice Forex traders must be very cautious when deciding to enter the market. It is best to stay out before major fundamental reports to avoid getting caught in sharp price swings. If you decide to trade during news releases, always place stop orders to minimize losses. Without stop orders, you can quickly lose your entire deposit, especially if you don't use money management and trade large volumes.

Remember: successful trading requires a clear trading plan, like the example above. Spontaneous trade decisions based solely on the immediate market situation are, by definition, a losing strategy for an intraday trader.