Trade of the week: short USD/JPY

(Video transcript)

This week's trading opportunity

Axel Rudolph: Hello and welcome to "Trade of the week" on Monday, the 23rd of June. Let's get straight into today's trade, which is to go short USD/JPY. Why would I do that when the US dollar exchange rate is heading higher?

Well, basically, I'm still looking at the trend. And you can see the trend since January of this year has been pointing down. We've had a series of lower highs and lower lows. And yes, short term we're heading up again. But we saw something similar happening at the beginning of May and also here in March. And then the trend resumed because from a fundamental point of view, we still expect the Bank of Japan (BoJ) to keep on hiking its rates, whereas we expect the Fed to cut twice this year.

Now, short term, the US dollar has risen today because of the escalation in the Middle East over the weekend, with the US bombarding several nuclear sites in Iran. And, that has led to flight-to-equality flows into the US dollar, hence this spike higher that we're seeing at the moment. But I would like to use that to go short USD/JPY.

And because of the current geopolitical situation and it potentially escalating in the next few days, I would like to use a pretty wide stop, not just above the May high, but also above these highs here, going back to the beginning of March and end of March. So, they're just sort of above ¥151.30.

Why all the way up here? Because short term, we might actually slightly go higher towards ¥148.50 or ¥148.00, and we've got a lot of resistance here. Previous lows coming in just above that area, and that's why I think we need a little bit of a wider stop this time. But we would only put this trade on if we have a good risk-to-reward setup. And, therefore, my downside target is still the low seen back from April, and that was around ¥140.00.

Previous weeks' trading outcomes

And before I summarise this trade, I'd like to also talk about last week's trade, and that was to go long the DAX 40, the German stock index here. It looked as if we had broken through a downtrend. We were heading higher on the day, but then, unfortunately, we got stopped out because we fell just below that low from the 23rd of May, closed below the there for a day, and we're trading back above it now. But, that trade would have gone wrong and we would have lost 2% of our trading capital on that trade because that's what we we’re risking per trade.

This week's trade in summary

In summary, today's "Trade of the week" is to go short USD/JPY at around current levels, let's say ¥147.50 - ¥148.00, and have a stop-loss though at ¥151.30, and a downside target in the ¥140.00 region.

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