Trade of the Week: long USD/JPY

(Video Transcript)

Dollar gets a boost

Good morning and welcome to Trade of the Week for the week beginning Monday, 7 August 2023. Each week, we look at a key market to trade, but first we'll look back at last week's trade where we looked at going long natural gas with our stock at £2,500 and a target up towards £29.30, the high from the end of June to the beginning of July. That has actually been stocked out, £2,500 was our stock and we hit that on Wednesday, a very short-lived trade.

But this one, interestingly, for the time being it's stopped going down. It's not really gone up much more the last three sessions but it certainly may be showing signs of another attempt to break higher. So maybe one to watch as natural gas continues a very slow and tough recovery from the lows of April. We've seen it rally from April lows but not huge amounts of upside but nonetheless trying to make another recovery again.

Moves by central bank weaken Yen

As we go towards this week or the week beginning 7 August, we're looking at the USD. The dollar trend appears to be reviving again actually, despite a lot of concerns about how the Federal Reserve Bank (Fed) will probably ease off in terms of its hiking push later in the year or even pause entirely.

But I think the interesting thing is what's emerged over the last few weeks is that the European Central Bank (ECB) is also very reluctant to keep hiking and also the Bank of Japan comments from the Bank of Japan members suggesting that they've used the slight tweak to the changes to the yield curve control policy as merely allowing the rates to rise slightly without seeing a definitive hawkish turn in policy.

So that has weakened the JPY and given the dollar a bit of a boost here but I think one to watch really here after declines at the end of last week. Thursday and Friday saw the price drop back, some signs of recovery here. So I think we're looking at going long.

Going long on the USD/JPY

You might argue perhaps we want to see a bit more upside here, maybe a close above 143 would give you that catalyst. So, it's going long on the trade if it goes above 143 with a stop then at let's look at the 50-day moving average which is 141.26 currently and we can tell you if it drops back below there then the expectation for the upside has been negated.

So that's the trade for the week beginning Monday 7th of August. We're going to go long on the yen above 143 with our stop at 141.26. We're going to initial target perhaps towards 145 and maybe beyond those keen highs if this uptrend does get further.